Mortgage – meaning and types

Mortgage shares the same meaning with mortgage loan. When the owner of a property gives it up either as a collateral or security for a loan, it is a mortgage. Mortgage restricts the owner’s right to his belongings. The interest on mortgages liquidates gradually with time. Mortgage is the basic avenue through which most individuals obtain the ownership of property in many countries. There are several basic elements that constitute mortgage. The first is the property which is the physical item that is financed. The borrower is the party that owns or is interested in owning the property. The lender is most commonly a bank though any other financial institution would suffice.  The principal refers to the original cost of the mortgage which could include other costs. Then there is the bill for borrowing the money called the interest. The outside chance that the lender can eventually own the property in question is the last in the list. It is called the repossession, and it is the simple reason why there is a distinction between mortgage loan and other types of loan.

Mortgage suffers from government interference in most countries in the world. The government enacts laws that regulate the activities of parties involved in mortgage. Mortgage runs over a long period of time and its payment shares every characteristic of an annuity. Most times, payment is monthly for a particular period of time. The amount borrowed from the lender is subject to the means through which the lender obtained the money. Mostly, the lenders borrow the money either through bonds or by deposits. In some cases, the lenders also sell the mortgage to organizations that show interest.

There are numerous mortgage types that are practiced in several parts of the world. Local conditions tend to regulate the terms and conditions that determine a mortgage loan. One of them is the interest. It may or may not be fixed for the duration of the loan. The amount paid could also be fixed or not. The adjustable rate mortgages and the fixed rate mortgages are the two most common mortgage types in many parts of the world. The former is largely believed to be the standard mortgage type. In the fixed rate mortgage, the rate of the interest and the payment is defined throughout the period of the loan. Other types are the assumed mortgage, the flexible mortgage and the reverse mortgage amongst others.