The Mortgage Loan Market
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. Word mortgage is a law french term meaning death contract meaning that the pledge ends when either the obligation is fulfilled or the property is taken through foreclosure.Accroding to ango american property law, a mortgage occurs when an owner pledges his or her interest as security or collateral for a loan. Therefore a mortgage is an encumbrance on the right too the property just as an easement would be, but because most mortgages occur as a condition for new loan money, the word mortgage has become the generic term for a loan secured by such real property. Many other specific characteristics are common to many markets, but the above are the essential features. Governments usually regulate many aspects of mortgage loan, either directly or indirectly and often throug state intervention. Other aspects that define a specific mortgage market may be regional, historical, or driven by specific charachetistics of the legal or financial system.
Lenders provide funds against property to earn interest income, and generally borrow these funds themselves. The price at which the lenders borrow money therefore affects to cost of borrowing. Lenders may also in many countries, sell the mortgage loan to other parties who are interested in receiving the stream of cash payments from the borrower, often in the form of a security. Ther are many types of mortgages used worldwide, but several factors broadly define the characteristics of the mortgage. All of these may be subject to local regulation and legal requirements. Interest may be fixed for the life of the loan or variable and change at certain pre defined period the interest rate can also of course be higher or lower. Term mortage loans generally have a maximumterm, that is the number of years after which an amortizing loan will be rapid. Some mortgage loans may have no amortization, or require full repayment of any remaining balance at a certain date or even nagaive amortization.
Upon maning a mortgage loan for the purchase of a property, lenders usually require that the borrower make a downpayment, that is contribute a portion of the property. This downpayment mey be ecpressed as a portion of the value of the property. The loan to value ratio is the size of the loan against the value of the property. Therefore, a mortgage loan in which the purchaser has made a downpayment of 20% has a loan to value ratio of 80%. For loans made properties that the borrower already owns, the loan to value ratio will be imputed against the estimated value of the property.In most countries a number of ore or less standard measures of creditwotthiness may ne used. Common measures include payment to income and various net worth measures. In many countries cradit scores are used in lieu of or to supplementthese measures.
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