What do you know about a mortgage? What is the simple definition of a mortgage? If you wish to understand mortgage meaning in simple words, then firstly we need to know that the word of “mortgage” is actually derived from French, and “mort” is actually mean death while “gage” indicates “agreement or pledge”. So, the simple meaning of mortgage would be “pledge till death” or “agreement till death”.
Some people did identify the word mortgage literally means “death contract”, and this somewhat dramatic moniker was used to underscore the severity of the commitment and effect that the mortgage would have upon the debtor. In essence, a mortgage was something that was binding upon the debtor until they died, and thus would last for their entire lifetime.
Simple Definition of Mortgage
In mortgage simple definition, it’s a loan borrowed by the purchaser from a lender to protect against property or home. Thus, a mortgage can say to be the transfer associated with a property interest to a lender or loan provider as being collateral or security for the debt incurred to the borrower.
The mortgage normally is getting involved with a financial loan of money. Another mortgage definition that we can use to describe is a mortgage is a loan to finance when buying real estate property, generally by means of stipulated repayment periods of time plus interest rates.
The borrower also can be called as mortgagor will offer the lender which also can be called as mortgagee a lien on the property or home as collateral or security for the mortgage loan that the borrower received.
What Does Simple-Interest Mortgage Mean?
A Simple-Interest Mortgage means that a mortgage in which interest will be calculated every single day. This can be very different compared to a conventional mortgage in which interest is calculated from month to month.
By getting a simple-interest mortgage, the charges on the interest will be calculated by dividing the rate of interest into 365 days, the number is then multiplying with the outstanding balance of the mortgage.
If you want the interest charge for every month, you can just multiply the interest charge every day with the number of days in that particular month.
Since the total number of days calculated by using the simple-interest mortgage calculation is higher compared to a conventional mortgage calculation, therefore, the sum of the interest paid off over a simple interest mortgage is going to be a little higher compared to a conventional mortgage.
Different Mortgage Types
There are many different mortgage types that you can apply for in today’s world depend on your needs and requirements. Among them are including:
- Fixed Rate Mortgage
- The Adjustable Rate Mortgage (ARM)
- Veterans Affairs Loan
- Biweekly Mortgage
- Interest Only Mortgage
- Federal Housing Authority (FHA) Mortgage
- Two Step Mortgage
In addition, there are 4 types of mortgage instruments that can be commonly found in the USA mortgage term. Below are the details of each instrument:
In some states, a mortgage will generate a lien on the title of the property. Foreclosure of the lien will always in need of a judicial court proceeding declaring the debt to be due or in arrears and instructing to sell off the property for debt repayment.
2. Security Deed
A security deed is actually a paper proof in which a lien on a property or home is taking place. Normally a lien is placed on the property or home when the borrower owes a considerable financial debt.
3. Deed of trust
For a deed of trust, it will comprise of a third party which is getting involved in the instrument referred to as the trustee. A paper or document that signifies the agreement between a borrower and a lender for transferring an interest in the land that belongs to the borrower to a fairly neutral third party known as a trustee, to secure the debt repayment by the borrower.
4. Foreclosure Process
The foreclosure process will be considerably quicker to obtain a deed of trust compared to a mortgage which can be as fast as in 3 months’ time instead of waiting for a year. Since foreclosure doesn’t call for actions via the court, thus the cost for the transaction tends to be very little. And for your information, you will mostly find the Deed of Trust in the state of California.
Simple Meaning of Real Estate Financing
Real estate is involved with a piece of land, which consists of the ground below it and the air above it, as well as any structures or buildings constructed on the land. Real estate is consists of residential and/or business properties and tends to be marketed either by the person who owns the property or by a realtor.
In the United States, most of the real estates are a lawful designation, as well as being subject to legal proceedings. For your information, sometimes we can also call real estate as realty.
All You Need to Know About Mortgages
One of the biggest investments you can make is buying your own house. However, this can be a daunting task if this is your first time doing it. There is a lot of terms that you do not understand and you might be caught off-guard when you start paying your loan.
Before you proceed with property purchasing, you need to know how mortgages work, how much money will be required, and the different types of mortgages that you can avail.
What is Mortgage?
When you buy a piece of property, you will need to get a mortgage in order to finance it. This is a type of loan that you can get from a lending institution and which you will give to the seller to pay for the property.
In turn, you owe the lender the amount of the property you purchased plus interest and other fees. The building society will hold on to the deed of the property as collateral until you are able to pay off your debt.
How Much Should You Borrow?
When you approach banks or mortgage companies, the first question in your mind will be the amount that you should borrow.
In general, the lender will let you borrow money amounting to three times your income if you are alone in your mortgage, and two and a half times your salary if you are getting a joint mortgage. However, this is not always the case because other lending companies have different rules about this.
You should consult with a financial or mortgage advisor about this so you will get the best deal you can afford. You should also take note of the current interest rates because it will affect the number of your monthly payments.
You can get a rough estimate of your monthly payments if you use a mortgage calculator which will take account of the mortgage amount, repayment period (in years) as well as the interest rate.
How Much Should You Put Down?
Another determining factor in your monthly payments is the amount of deposit that you will put down. According to financial experts, you should give a big deposit so that the interest rate will be lower, especially if the period of your mortgage is lengthy.
Saving up for a big deposit may be difficult especially with the state of the economy today, but think of all the money you can save in the long run.
Types of Mortgages
There are two basic types of mortgage available: the repayment mortgage and the interest-only mortgage. The repayment mortgage is fairly straightforward: you pay back the capital and interest bit by bit on a monthly basis. You need to be able to make your monthly payments or it can lead to repossession.
In interest-only mortgages, you only have to pay for the interest on a monthly basis, though you still have to pay for the capital when the term of your mortgage ends. This can be done by getting an endowment plan or a pension plan.
What About Joint Mortgages?
You can avail of a joint mortgage if you are applying for a loan with another person. The lender will review both of your qualifications and both of you are responsible for repaying the mortgage. Lenders will allow you to borrow a higher loan amount if you are getting a joint mortgage.
However, you need to clear out any issues such as ownership and wills before you sign the documents. Also, take note that US laws do not recognize the common law for wife or husband, so you might want to come up with a living together agreement first.
More Sinister Twist
Some people have suggested that there is a more sinister twist on this definition: claiming that a mortgage will sometimes be the death of a person. At the very least, a mortgage is a major drain on the financial income of the debtor; and if left unchecked, can present severely detrimental implications in the future.
One of the worst mistakes that a debtor can make when it comes to the taking out of a mortgage is to underestimate the power that a % figure has upon them. For example, it is common for many mortgage providers to levy a so-called “arrangement charge” for the provision of the mortgage. The arrangement charge will typically be levied as a percentage of the total value of the mortgage. At first glance, 5% doesn’t sound too daunting.
However, 5% of a $150,000 is going to be $7500; and that is before you have even signed the contract to make the commitment to the deal concrete! Some commercial lenders will offer the prospective borrower a choice of deferring the repayment of the arrangement charge, and instead of having the balance of it added to the balance of the mortgage.
From a psychological perspective, many consumers report that they are sorely tempted to take this option, as the luxury of being able to stretch their repayment schedule helps with their short-term solvency and financial liquidity. It also helps to ensure that they are able to deal with more pressing and immediate financial obligations, in addition to being able to maintain a certain standard of living.
However, the reason that this is problematic is due to the nature of compound interest; the financial doctrine whereby the interest owed on a capital sum is then added to the capital sum and that new figure will then generate additional interest.
Consider the following example.
A mortgage of $400,000 has been taken out by a borrower; with an arrangement fee of 5% levied, meaning that this is valued at $20,000. The annual rate of interest for the mortgage is 10% and compound interest is in effect. This means that the debtor would be liable for 10% of $420,000, with steady increases each year thereafter.
Another issue to be aware of is that some lenders will charge additional fees and penalties to borrowers who actually repay their mortgage in a shorter period of time than agreed. The logic behind this, at least, from the lender’s perspective, is to levy as much money as is reasonably possible from the consumer. However, you may find that making an overpayment may be to your benefit in the long-term; especially if you are bound by the terms of a compound interest based mortgage.