Mortgages

The most popular kind of secured loan available today is a mortgage. A mortgage is a secured loan because a security interest in a piece of real estate serves as collateral.

There are many different kinds of mortgages available today but all mortgages function in much the same way: a lender extends a borrower a loan to purchase a piece of real estate. The borrower then gains the right to use the property as long as he or she makes payments on the mortgage. The lender retains the legal ownership of the land as collateral for the loan. When the mortgage is paid, the borrower gains full ownership of the property.

Mortgage agreements can be very complex because of the wide variety of laws and regulations that cover them. Laws regulating mortgages vary substantially from state to state for political reasons. In states with non-recourse or anti-deficiency laws for example, mortgage lenders can only seize the real estate and not sue borrowers to recover unpaid loans.

The mortgage contract stipulates that the borrower repay the loan through a specified number of regular payments. The payments typically occur on a monthly basis and the amount of each payment is a percentage of the principal.

Mortgages and Home Equity Loans as Secured Loans

The collateral in a mortgage is the ownership of the real estate. The lender retains this ownership and only releases it to the borrower when the mortgage is paid.

Since the mortgage lender retains ownership in the property, he has the legal right to seize the real estate or foreclose on it. Foreclosure is a very complex process that is highly regulated under the law. The big difference between mortgages and other secured loans is that it usually requires court action to foreclose on mortgaged real estate.

Something that homeowners should realize is that home equity loans and home equity lines of credit are also mortgages. Equity-backed instruments are considered secured loans, and the lenders that make them do have the right to foreclose on the property involved or place a lien against it.

Equity and Mortgages

Mortgages

A home equity loan or line of credit (HELOC) is a loan or line of credit secured by equity in a property. Equity is a measurement of the difference between the value of a piece of property and the amount owed on a mortgage. If a home is worth $200,000 but mortgaged for $100,000, the home's owner would have $100,000 worth of equity. As with other kinds of mortgages, lenders who issue these loans can foreclose on the property involved.

Refinancing Mortgages & Interest

The rate of interest is one of the most important features of a mortgage because it determines the cost of the monthly payments. The payments are determined through amortization, a mathematical formula in which the interest, the cost of the property, and other costs are added together to calculate the total repayment amount.

Unlike most secured loans, it is possible to refinance mortgages. In this process, the existing mortgage is paid and a new one takes its place. In a refinancing, there will usually be new terms and a new rate of interest on the mortgage. The most common reason for refinancing a mortgage is to reduce the interest rate.

The mortgage market is currently in flux because of the 2008 financial crisis. Many people believe that risky mortgage lending was the cause of this crisis. The federal government is currently in the process of reforming and restructuring the mortgage industry. At this time, it is unclear how these actions will affect the future of mortgages for the average borrower.

Therefore, it is a good idea to do a lot of research on mortgages and secured loans before purchasing property or refinancing. Many of the mortgage options available in the past may not be available in the near future because of these reforms.

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