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MORTGAGE BASICS

To put it simply, a mortgage is a loan to finance the buying of real estate, with specified payment periods and interest rates.

In most countries, mortgages are the primary means of financing home and property buying, because few individuals have enough savings or liquid funds to enable them to purchase property outright.

In the mortgage process, the borrower (or mortgagor) gives the lender (or mortgage) a lien (or a legal right) on the property as collateral for the loan. Interestingly, the word mortgage is a French term denoting a “death contract”, meaning the pledge ‘dies’ when the obligation is fulfilled or the property is seized through foreclosure.

The basic mortgage terms that should be known by everyone applying for a mortgage are the following:

  • Property: the physical residence that is being financed. The property can take many forms: single family residence, duplex, townhouse, low or high rise condominium, triplex, fourplex, condotels, etc.
  • Mortgage: a loan borrowed by purchaser from lender to protect against property or home.
  • Borrower: the person who is borrowing the money or has an ownership interest in the physical property.
  • Lender: is any lender, but in most cases is a bank or other financial institution. Borrowers may contact the lender directly, but usually this is done with the help of mortgage brokers or other mortgage professionals.
  • Principal: the original size of the mortgage loan, which may or may not include extra costs.
  • Interest: a financial charge for using the lender’s money, usually a percentage of the principal.
  • Foreclosure: or repossession. If the borrower fails to fulfill his obligation, the lender has the right to foreclose, repossess or seize the property.