Mortgage lending is the process of issuing mortgage loans. A mortgage loan is a type of loan which is received by securing a real property. Usually, a mortgage loan is taken to buy a house or real estate. In case of mortgages, the real estate functions as a collateral to the loan.
A mortgage is a process in which a property (real or personal) is used as security for the repayment of a loan. A mortgage loan can be taken for buying a commercial or personal real estate property. In case of a home mortgage loan, the particular house which anyone is going to buy is kept as security or pledge. If there is a default on behalf of the borrower, the bank holds the claim on that particular house. The regular repayment of the mortgage loan amount brings down the principal and this process is known as amortization of the mortgage loan.
The parties involved in a mortgage transaction can be categorized into two types:
- The borrower of the mortgage loan is known as the mortgagor
- The lender of the mortgage loan is known as the mortgagee
Home mortgage or residential mortgage is the main device for financing private ownership of residential properties in many countries. The amount of a mortgage loan is often dependent on the concerned person's credit ratings or credit history
The essential constituents of a mortgage loan are the following:
- Property: The house for which the loan has been taken.
- Mortgage: The pledge or security created by the lender on the property.
- Lender: A bank or a financial institution or any other lending company.
- Borrower: The person who is taking the loan or who has an ownership interest on the property.
- Principal: The original loan amount. As it is repaid, the principal is reduced.
- Foreclosure or repossession: It is the probability that the lender may foreclose, seize, or repossess the property under certain conditions.
- Interest: It is a financial charge for using the money of the lender.
The borrowers of mortgage loans are also known as originators.
The factors regulating mortgage lending are: interest rates, which may be fixed for the whole life of the loan or variable where the interest rate can go up or go down, term of the mortgage loan, payment amount and frequency, and prepayments.
Usually, there are two types of amortized loans. They are:
- Fixed Rate Mortgage (FRM) and
- Adjustable Rate Mortgage (ARM) or floating rate or variable rate mortgage.
The mortgage quote can be termed as the total benefits and costs associated with a mortgage. There are various ways of receiving a mortgage quote which may include searching with the help of a mortgage broker or directly communicating with a mortgage lender.
There are various ways of repaying the mortgage loan. They are:
- Capital & Interest Repayment
- Interest Only Repayment
- No Capital or Interest Repayment
- Interest and Partial Capital Repayment
- Foreclosure and Non-Recourse Lending
The different types of mortgage loan include the following:
- Assumed mortgage
- Blanket loan
- Balloon mortgage
- Budget loan
- Bridge loan
- Buy down mortgage
- Commercial loan
- Foreign national mortgage
- Graduated payment mortgage loan
- Hard money loan
- Jumbo mortgages
- Package loan
- Participation mortgage
- Reverse mortgage
- Repayment mortgage
- Seasoned mortgage
- Term loan or interest-only loan
- Wraparound mortgage
- Negative amortization loan
- Non-conforming mortgage
- Equity loan
The mortgage lending institutions include the following:
- ABN AMRO
- Countrywide Financial
- GMAC Mortgage
- American Financial Mortgage
- CitiFinancial
- Ginnie Mae
- Fannie Mae
- Freddie Mac
- Global One Lending
- Dollar Bank
- Genworth Financial
- Wells Fargo
- Mortgage Choice
- NyKredit
- IIB Bank
- E-Loan
- Chevy-Chase Bank
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