What is a Mortgage?
What is a Mortgage?
This common question is often posed to me in one form or another by borrowers who are having troubles with their mortgage. This was written for informational purposes to share basic mortgage structure so you will have a better understanding of other mortgage topics.
First off, a mortgage is a loan secured by real estate property. Land, houses, condos, and other real structures tied to land are eligible properties.
In the completion of a mortgage, a borrower (mortgagor) obtains a loan from a lender (mortgagee) and in turn gives the lender a lien against real estate property as collateral for the loan. The transaction is acknowledged as taking place in a Deed of Trust, which is a set of agreements the mortgagor and mortgagee agree to follow. The loan terms are written out in a Note. The note will contain the interest rate, loan amount, and other terms of the loan. Often addendum’s to this Note are attached which further describe terms of the loan. The most common addendum are Adjustable Rate Riders which detail how the interest rate may adjust, Interest Only Riders which detail for how long reduced interest only payments may be made, and Prepayment Penalty Riders which state how large and how long penalties for paying off the mortgage in advance may be. Other common addendum are Condo HOA Riders which detail how the borrower acknowledges and agrees to upkeep the HOA, and Multifamily Riders which acknowledge that the real estate in question is not a single family residence.
The terms of second mortgages, home equity lines of credit, and commercial loans are normally acknowledged by a Promissory Note from the borrower to the lender. This is a type of note that includes a “promise to pay” and may be used in some states by a lender to collect from a borrower until satisfied even if the real estate collateral was sold, transferred or foreclosed upon.
The Deed of Trust acknowledgment also normally contains a “due on sale” clause and other notes about how the property must remain repaired and insured. The “due on sale” clause means that if the mortgagor sells or quit claims his interest in the property the lender may call the loan due.
Mortgagors have legal rights regarding how they are served as a customer. These range from notifications of loan information via statements, foreclosure and default notifications, transfer and sale of the mortgage note between lenders, and the responsibility of the lender to accept payment as per the mortgage documents and lending law.
For questions on your mortgage, feel free to call or email me at steve@rateswire.com!
Stephen Ching is a loan originator working in Washington State. To contact him regarding questions or comments, or to inquire about a mortgage in Washington State, please visit his site at www.seattle.rateswire.com.
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