Mortgages are legal documents which provide a temporary, conditional pledge of property to a creditor as security for performance of an obligation or repayment of a debt.

In legal terms mortgage means a contract or deed specifying the terms of a the mortgage.

The society's finite resources: people and land can be ultimately utilized by the means of a mortgage. The process provides a mean for ready transferability of land (plus for the improvement or working of that land) by those unable to buy the property with their current resources.

However the major important role that the mortgages play is in maintaining the market in residential housing, since they permit individuals with relatively little personal credit to purchase a house by offering the house itself as security for the loan.

In the United States, the secondary market in mortgages, an initiative by the federal government, supports mortgage transactions. Banks that have placed residential mortgages can sell them in the secondary market in order to raise capital to make further loans. Thus mortgages have been converted into a standardized product.

The mortagages process includes the fllowing.

A Creditor

The Creditors are those who pay the loan. A Creditor has legal rights to the debt secured by the mortgage and often make a loan to the debtor. Creditors include banks, insurance agencies and other financial institutions . Since the Creditor provides the mortgage , it is also termed as the mortgagee or lender.

The Debtor

The Debtor is one who takes a loan against some property from the Creditor. Debtor is bound by law to pay back the loan amount in a legal process. The debtors may include individual home-owners, who borrows money.

Since the debtor borrows money from Creditor, the debtor is also called the mortgagor, borrower, or obligor.

Other participants

Other participants may be lawyer, solicitor and conveyancer for legal mediation of the mortgage process. A mortgage broker or financial adviser to help the debtor, to source an appropriate creditor, is often sought after, due to the clegal cmplexity oof the procedure.

Legal types of mortgage

1. Mortgage by demise

An older form of legal mortgage , in a mortgage by demise, the creditor becomes the owner of the mortgaged property until the loan is repaid in full (redemption). This type of mortgage ensures return of the property on full redemption..

2. Mortgage by legal charge

The more common type, in mortgage by legal charge the debtor gains sufficient rights to operate within limits ( such as to sell and maintain the property) while the creditor remains the owner of the property.

A mortgage by legal charge is usually recorded in a public register so that the creditor remains in charge. Usually, banks and other FI do their searches to find out whether the debtors property is risk free. In other terms, the property should not have the burden of other mortgages which has higher priority

Repayment of the capital

Depending on locality, tax laws and prevailing culture repayment options are aplenty for mortgages.

Capital & interest ( Ammortization or repayment of Capital)

In this process, regular payments of the capital along with interests are made within a stipulated period of time. The time depends upon the loan and can be short (10 years term) or long (50 Years).

In UK and USA the typical repayment period varies from 25 to 30years and are in the form of monthly payments which includes a ratio of interest and the capital. Usually, in the beginning the interest part remains high while it goes on decreasing as the capital part comes into foreplay twards the end. The loan amount is calculated at the outset so that all the amount with the capital is paid at the end of the tenure . This also ensures that the loan would be paid within a specified period.

This process is usually termed as amortization in USA while in UK -the Repayment of Capital.

Interest only

In interest only type, capital is not paid during the tenure of the loan term. Mostly running in UK these are usually clubbed with a regular investment plan , called a investment backed mortgage. Here, a separate investment plan is mainained parallaly so that at the maturity the total amount becomes equal to that of the mortgage. In spite of investment plan, people can opt for endowment schemes, Personal equity or individual savings and the mortgages are named accordingly as endowment backed mortgage, Personal Equity Plan (PEP) mortgage and Individual Savings Account (ISA) mortgage respectively

Sometimes, these mortgages are also arranged in terms of the trading in the property market and the borrower actually gambles by perceiving that at the end of the tenure, due to rise in the property market prices, the mortagage can be wholly paid.

No capital / interest Mortgages

This type of mortgages are usually reserved for older borrowers. The typical pre requisite being retirement, in this case the mortgage is arranged as such neither the capital nor interest is repaid. The interest is rolled up with the capital and the debt goes oon increasing each year. The loans are repais after the death of the borrowers and hence there is a age restriction t the process.

The different names of this type of mortgage is reverse mortgages, lifetime mortgages or equity release mortgages etc.

Interest and partial capital- partial amortization or balloon loan

This process includes the payment of monthly dues for a longer time and the outstanding balalnce ( Balance amunt) in a point of time within the mortgage term, which is shorter than the whole tenure. This system is usually applied, in UK, in the case of investment backed mortgages where further borrwing for moving house is fixed at a repayment basis.

Mortgage loan types in the United States

The two basic types of amortized loans in USA are;

1. The fixed rate mortgage (FRM) : Here, the interest rate (so, the monthly payments ) remain fixed for the whole tenure, which can be of 10,15, 20 or 30 years. However, due to increase in property taxes, the monthly payments may go higher.

2. Adjustable rate mortgage (ARM): In ARM, interest rate is fixed for a specific period while later on the rate follows some particular indices such as Prime Rate, the London Interbank Offered Rate (LIBOR), and the Treasury Index ("T-Bill"). Other less famous indices include 11th District Cost of Funds Index, COSI, and MTA etc.

ARMs are useful where unpredictable interest rates make fixed rate loans difficult to obtain. Since the risk is transferred from the lender to the borrower, lenders will usually make the initial interest rate of the ARM's note. (Varying from 0.5% to 2% which is lower than the average 30-year fixed rate).

Since the savings are more than the risk, ARMs are preferred options for short term mrtgages. Credit reports are the tools fr the lender and and credit scores derived from them . The higher the score, the more creditworthy the borrower is assumed to be and Favorable interest rates are offered to them