The word Mortgage comes from the old French “dead pledge” that means the pledge ends when the obligation is fulfilled or the property is taken by the foreclosure.
Mortgage means the transferring of an interest in property to the lender for a purpose of debt security. It should be clear that Mortgage itself is not a debt.
It is a transfer of an interest in the form of land or equivalent from the owner to the Mortgage lender. If the terms of the Mortgage will not be satisfied then the interest would be given back to the owner. We can say that mortgage is the security for the loan that a lender has taken from the borrower.
In some jurisdictions mortgages are made on real estate rather then other property and in some other jurisdictions only land is mortgaged. It is the standard method in which individuals and businessman can buy real estate without paying full value immediately from their resources.
The fee paid by the borrower is calculated on annual percentage rate (APR) which is an effective annual rate of interest.
Terminology for Mortgage:
There are various terminologies used for mortgage. Mortgage involves following parties:
· Mortgage Lender:
Mortgage lender is a party from whom property is mortgaged. It provides security to the lender. As lender is providing a big amount of money and financing the borrower so lender wants the security over the property he has mortgaged so that he can claim his property in case of any problem.
The borrower gives the lender the security for the loan, give funds and the required payments.
· Borrower:
Mortgagor is the party who mortgages property. He owes the obligation for the loan and in case he fails to fulfill the obligations then he runs the risk of foreclosure of the mortgage by the creditor to recover the debt. Debtor must meet all the conditions of underlying loan and other obligations. Debtors are usually individual home owners, businessman or landlords.
· Investment Purposes:
An investor borrows funds for several reasons. For example:
ü To obtain tax benefit.
ü Investing of borrowed funds at higher rate.
ü To reduce risk and enhance investments.