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. In addition, they may have the following features.- 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 - typically 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.