Mortgage loans are financial loans for real estate properties, which are paid, with interest, within a fixed period of time by the borrower. A mortgage loan requires some sort of security for the lender. In most cases, this security (collateral), is the real estate property itself.
The person who lends the mortgage loan is the mortgagee, while the person who borrows the loan is the mortgagor.
The mortgage loan agreement legally binds the mortgagee and the mortgagor. The agreement entitles the mortgagor to receive a financial loan from the mortgagee. The promissory note in the agreement secures the mortgagee, which entitles them to the collateral and a promise made by the mortgagor to repay the mortgage loan in due time. In the USA, the typical period for a mortgage loan may be 10, 15, 20 or 30 years.
The two fundamental types of mortgage loans in the USA: Fixed-Rate Mortgages and Adjustable-Rate Mortgages.
Fixed-rate mortgages include interest rates that are locked in for the life of the mortgage, while adjustable-rate mortgages include interest rates that fluctuate up or down according to market index. Hence, fixed-rate mortgages provide security to the mortgagor, while adjustable-rate mortgages provide security to the mortgagee.
Loan Origination is the process of applying for a loan, and having the lender process the application.
The process of originating a loan happens between the mortgagor and the mortgagee but might sometimes involve a mortgage broker. The broker charges a commission on every loan originated; therefore, a broker’s involvement increases the cost of the entire mortgage.
Mortgage loans below 80% of the entire property value need added security for the mortgagee.
This added security is in the form of insurance policies, called mortgage insurance. The borrowers monthly mortgage payments include the mortgage insurance. However, if the mortgagor makes at least 20% of the down payment, then the mortgage insurance may be waived.
In the US, there are several types of mortgages available. The most popular mortgages are those originated by the Federal Housing Administration. These very popular loans are Fannie Mae, Freddie Mac and Ginnie Mae loans. Fannie Mae mortgages are the most popular types of mortgage loans in the USA.