Mortgage

We will use a very simple scenario to explain the concept of mortgage. Mr. Borrower wants to purchase real estate say a house for his family but does not currently have enough money in hand to make an outright purchase. He consults his friends on how to raise money. His friends advise him to go to a lending agency like a bank or a fund house that may be able to help him with the purchase. So Mr. Borrower ends up going to a fund house that are ready to finance his purchase on the condition that he keeps the ownership of the house as security with the fund house until he completely pays off all the money he owes. The fund house also levies an interest rate on the loan so Mr. Borrower will owe a monthly payment which will be determined by the interest rate and the duration of the loan. This arrangement between Mr. Borrower and the fund house is called as Mortgage. The reason the fund house keeps the ownership of the house with them is that incase Mr. Borrower is unable to make the pay off the loan the fund house can sell the house and recover the money given to Mr. Borrower.

The example described above illustrates mortgage loan for a residential house purchase, there are mortgages available for commercial property purchase as well. The usual participants of a mortgage are a lender and a borrower. The lender as discussed before can be any financial organization who is willing to lend money at a particular rate of interest. A borrower can be an individual or a group of individuals who want to purchase real estate for residential or commercial purposes. There are several other people who are involved for executing a successful mortgage deal. More often than not there are mortgage brokers who help borrowers shop the correct kind of loans. The broker represents the borrower while negotiating the mortgage deal with the lender. There are loan officers which represent lending agencies and conduct all the procedures for the lending agency. There are lawyers involved that help the borrowers understand all the legalities involved in the process of mortgage and ensure that there is no foul play in the mortgage deal. It is important that the borrower does his own homework before proceeding with any kind of mortgage deal.