Mortgage Loan

What is a Mortgage?

A mortgage is a financial agreement between a lender and a buyer, in which the property is used as collateral for the loan. A mortgage gives the lender the right to collect payments on the loan and to foreclose on the property if those payments are not made.

What is a Mortgage Loan?

A loan which utilizes property as a security or collateral to provide for repayment should the borrower default on the terms of the loan. The mortgage or Deed of Trust is the financial agreement to pledge the property as security and gives the right to the Mortgagee to foreclose in cases of default.

In US a mortgage loan is granted for purchase of a property if it is for own use. In case the purchase of property is not for own use a real estate loan is granted.

In India a housing loan is granted for purchase of a dwelling unit irrespective of whether it is for own use or for rental/investment purpose. A mortgage loan is granted to borrowers against the pledge of already owned property.

Variants of Mortgages

First Mortgage is a type of lien on an unencumbered property wherein the first mortgagee has the first-priority claim against the property in the event the borrower defaults on the loan.

Second mortgage is a mortgage granted against an already mortgaged property. The mortgagee has the second priority claim or residual claim against the property in the event the borrower defaults on the loan.

Pari-Passu mortgage is a type of lien on mortgage wherein all the mortgagees of the property get proportionate rights in the event of foreclosure of the loan on account of borrower defaults. Pari-Passu is a Latin term and means “Without partiality”.

Fixed Rate Mortgage is a mortgage whereby the rate of interest is fixed for a specified period of loan or for the term of the loan itself.

Variable Rate Mortgage is a mortgage whereby the lender charges the borrowers at a variable rate of interest. The rate of interest could be linked to some reference rate like LIBOR, MIBOR, Index etc.

Interest Only Mortgage is a mortgage wherein the repayments made will cover only interest, the principal amount will be paid at the end of the term of the loan. The unique feature of these type of loans are that an investment products like endowment policy, pension plans will normally run concurrently for the period of loan. As an illustration, say a loan is sanctioned for a period of 10 years for an amount of 1. Mio. An Endowment policy is also opened and assigned to the bank as security with same maturity amount as that of loan i.e.1.0 Mio. On the maturity date the endowment policy proceeds are apportioned to satisfy the loan outstanding.

Offset Mortgage is a mortgage wherein a savings and/or current account is linked to the loan. This will enable the borrower to reduce their mortgage interest by offsetting their Savings and