A mortgage is a lien on real property that you own, placed by a bank or financial institution, for money borrowed to pay for the property. When a mortgage is signed and approved, you will be obligated to repay the property loan, plus interest, and the financial institution will have the right to foreclose on your property if you fail to pay the mortgage.
A mortgage transaction involves two documents: the promissory note and the mortgage (or deed of trust):
- I will pay: it is a contract. Under the promissory note, (the borrower) agrees to pay the financial institution (the lender) for the money borrowed, plus the agreed-upon interest. A promissory note holds the borrower responsible for repaying the loan, even if the borrower sells the property.
- Mortgage (deed of trust): A mortgage or deed of trust acts as a lien on the property. This means that if you do not repay the loan, the financial institution can force payment by selling the property. Therefore, the mortgage document guarantees that the financial institution will get its money back even if the borrower does not pay.
What are the different types of mortgages?
Choosing the right mortgage is important to ensure future financial stability. These are the main types of mortgages:
- Fixed rate mortgages: Under this scheme, when you apply for a loan from a financial institution to pay for the property, the interest rate you pay for the loan and the monthly payment will be determined before accepting the loan. These values will be the same during the time agreed to pay the loan.
- Adjustable rate mortgages: The interest rate and the monthly payment on the home loan will remain the same only for an initial period of time, which ranges from six months to five years. After that time, the interest rate and payments can be adjusted periodically, based on current market interest rates.
- Global mortgages: A balloon mortgage begins with an interest rate and monthly payment that is fixed for the duration of the loan, but after a short period of time set by the lender, the entire loan must be repaid.
- Interest-only mortgages: An interest-only mortgage is an interest-only payment method that can be combined with any type of traditional mortgage.
Depending on the terms of the mortgage, during an initial period, the borrower only pays the interest portion of the loan, thus reducing the payment. After that time, the payment amount will increase to include both interest and principal, often in an amount greater than payments that would have been in more traditional payment methods.
Requirements to complete a mortgage application
Before applying for a mortgage, you must provide the following information:
- Value of current assets (eg car (s), other property, etc.);
- Value and type of debt (for example, student debt, medical debt, etc.);
- Current employment and income history;
- Source of the initial payment (for example, if parents contribute to the initial payment); and
- Credit / score history.
What is considered a good credit score varies between mortgage lenders, so it is important to know your credit score and find out what score will qualify you for a mortgage with your mortgage lender.
What happens if the mortgage is not paid and what solution could I have?
One of the most common outcomes of a mortgage lawsuit is that the lender may be granted a lien, allowing it to take possession of some of the borrower’s (also known as the owner’s) property to offset payments.
If you fail to pay the mortgage or deed of trust, your lender has the right to begin the foreclosure process. Even after the lender begins the foreclosure process, you will be given a grace period to pay the missed payment. If you don’t pay your mortgage at the end of the grace period, your lender can inform the credit bureau that your score will be lowered and it will be on your credit history.
You will also receive a default notice and notice that foreclosure will begin on your property. If you cannot pay the missed payment plus interest in full before foreclosure begins, your lenders or the courts will take over and sell your home. Your lender receives the remaining loan amount from the proceeds of the sale.
Other remedies may include wage garnishment to make up for missed payments. However, the parties can sometimes agree to a new debt arrangement that would be more beneficial to each party. If you are behind on your mortgage payments be sure to review your mortgage agreement to see if it is possible to create a new debt agreement.