Question

Please discuss about Mortgage in Finance.

Answer 1

A mortgage is an agreement between the borrower and a lender in which the right to take property of the borrower if the borrower fail to repay the money borrowed and interest. Mortgage loans are used to buy a home or to borrow money against the value of a home you already own. In simple words mortgage is used in an agreement between a mortgagor one who takes a loan and the mortgagee who gives the loan. Here the mortgagor a person who mortgages property and mortgagee is the bank or lending institution issuing the mortgage loan.

If the debtor does not pay the loan amount the creditor has the right on the mortgaged property. It is a method which used to create a charge on property by contract. Without paying full value one can easily get a property in case of mortgage. Mortgage is a promise to repay a sum of money received today at a pre determined future time. The borrower receives a sum of money by entering into a contract. This sum of money is the loan amount. The length of time over which the loan amount is repaid is called the term or maturity of the loan. Over the term of the mortgage the loans can be repaid in installments in a lump sum at the terminal date of the contract, or in some combination of installments and a final lump sum payment.

The contract interest rate is the interest rate that the borrower pays the lender in exchange for having the money today. There are two risks associated with lending. The first is the default risk that arises when the borrower fails to repay the loan and the second is the market risk which arises when interest rates change over time. In the case of mortgages, the collateral is mostly the property being purchased. Following are the important types of mortgages.·  

Simple mortgage

In a simple mortgage the mortgagor makes a promise to pay the mortgage money and agree that if he fails to pay a loan amount, the mortgagee will have right to sell the mortgaged property and cover the loan amount.

Mortgage by conditional sale

In a mortgage by conditional sale, there will be some condition laid down by the mortgagee and mortgagor at the time of entering into the agreement. Here both the parties are liable to follow the condition mentioned before signing the contract.

· Usufructuary mortgage

Here the mortgagor gives possession to deliver ownership to the mortgagee and authorizes to retain ownership of property till the payment is fully made by the mortgagor including principal and interest amount of the mortgage.

· English mortgage

Here the mortgagor makes a promise to pay the mortgage amount on a certain date and transfer ownership to the mortgagor with a provision that he has to re transfer the ownership once the payment done by the mortgagor.

Anomalous mortgage

Section 58 of the Transfer of Property Act defines the anomalous mortgage. It should not be anyone of the mortgages listed above and it is negatively defined

Equitable mortgage

  Here the mortgagor gives original title deed to the bank with an aim to create security there on. This kind of mortgage has no need to be registered with sub-registrar. An equitable mortgage is created by depositing the original title deeds along with documents.

· Registered mortgage

This kind of mortgage has to be registered with sub-registrar.In a registered mortgage, a charge is created on the property with sub- registrar formally.

Here the lender takes the ownership of the property if the borrower fails to pay the loan amount and vice versa. A written proof is used for the security purpose.

  Balloon mortgage

This kind of mortgage has a fixed rate of mortgage. Here the mortgagor has to pay large amount at the end of the term so the monthly payment is lower. Usually it is a short term based mortgage.

  Reverse mortgage

It is mortgage loan in which a lender pays monthly installments to the borrower.