Mortgage
Overview
A mortgage is a pledge of real estate (or some other property) as security against a loan. In most cases,
a mortgage refers to a residential mortgage, which is a pledge of a family home and its related property in
order to secure financing for that property.
Mortgage Structures
Mortgages are typically structured as an
amortized
loan.
- Fixed Rate vs Adjustable Rate Mortgage - both are typically amortized loans, however, in the ARM,
the monthly mortgage payment is recalculated.
- Pre-payable - the typical structure in the United States. Borrowers are
given the
option
to prepay the entire balance of the mortgage without penalty.
(see derivatives)
Non pre-payable - typicaly structures in Britain, where the borrower does not
have the right to pre-pay.
- Mortgages are often time bundled together into a
structured security
which is then sold. These securities, known as
mortgage backs
are a common asset on the balance sheets of banks.
Lien Status
A property used in a mortgage can be used to secure other mortgages or loans as well. This means that if the
borrower defaults, there may be several creditors that will seek compensation. The lien status indicates the
seniority of the given mortgage in the list of creditors that have a claim to the property securing the loan.
It is a first lien of the mortgage is first in line to be paid, a second lien if it is second. A junior lien
is any lien that is subordinate to some other interest.
Topics
