Mortgage Financing

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Mortgage financing is the process of utilizing property or conveying the personal as well as real property of the mortgagor on condition, as a security for the repayment of a loan. Mortgage financing in most of the countries is restricted generally to securing loans against land or house.

Parties involved in mortgage financing:

Mortgage financing involves mainly 2 parties – the first party is the mortgage lender and second party is the mortgagor or the mortgage applicant. The mortgage lender is the person who provides the mortgage loan against the collateral of the mortgagor. The mortgage lender is legally allowed to confiscate the collateral in case the mortgagor is not able to pay off the loan within the stipulated period. The mortgagor is the loan applicant who is responsible for the repayment of the mortgage loan secured against his personal property. In case of default in the repayment of the mortgage loan by the mortgagor, the mortgagor has to suffer from the process of foreclosure carried on by the mortgagee. Foreclosure is the procedure wherein the mortgage lender sells the property of the mortgagor to recover the loan amount. Foreclosures can be of various kinds like the foreclosure by judicial sale, foreclosure by power of sale, strict foreclosure etc.

Foreclosure in mortgage financing:

Foreclosure by judicial sale requires the sale proceedings to be carried on under the superintendence of the court whereas in case foreclosure by power of sale does not require the superintendence of the court during the sale proceeds. In strict foreclosure the court extends the tenure of the mortgage loan to help the mortgagor in the repayment of the loan. In case the mortgagor fails to pay off the mortgage loan, the mortgage lender by the virtue of law becomes the owner of the property secured for the repayment of the loan of the mortgagor. Recently, the complexity and growth of the mortgage market has necessitated the entry of middlemen or mortgage brokers, between the mortgage lenders and the mortgagors, who are highly experienced in the field of mortgage. They provide assistance to the mortgagors in the selection of the appropriate mortgage lender as well as the appropriate mortgage loan that will suffice the requirements of the mortgagor.

Repayment Procedure in mortgage financing:

The procedure of mortgage financing facilitates the mortgagors on account of the long tenure of the mortgage loans and the large number of repayment options provided by the mortgage lenders. The long tenure of the mortgage loans helps the mortgagor to repay the loans in the form of small payments at regular intervals over a substantial period of time. The large repayment options include the generally followed repayment option of the repayment of both the interest and the capital amount at regular intervals during the loan period. The exact opposite repayment option of the above repayment option involves the repayment of the capital and the interest at the end of the loan period. There are other 2 popular repayment options also available for the mortgagors. The first popular option includes the repayment of the interest at regular intervals, but the payment of the capital is done at the end of the tenure. The second popular option involves the partial payment of the capital amount during the loan tenure but regular payments of the interest. The calculation of interest in case of mortgage financing is done with the aid of 2 interest calculation procedures-the fixed rate interest calculation procedure and the adjustable rate interest calculation procedure.

Classifications of mortgage financing:

Mortgage financing can be classified into various types as home mortgage financing, Second Mortgage Financing, Commercial Mortgage Financing etc. Home mortgage financing is the most significant method of financing individual ownership of residential properties prevalent in most of the countries around the world. The home mortgage financing is usually stretched over a long period of time. Regular payments towards the capital amount in case of a mortgage loan can be compared to the annuities in case of insurances or retirement plans. The mortgage lenders essentially use home mortgage financing to gain income from interests and usually resort to the accumulation of funds with the issue of bonds or acceptance of public deposits. Commercial mortgage financing involves securing of loans against any property used for commercial purpose. Second mortgage financing is the procedure of taking another mortgage loan against the already mortgaged property.

Last Updated on 5/26/2011