Mortgage financing is defined as the process of underwriting, which evaluates the eligibility of a customer to receive some financial product, and giving a mortgage on the property of an application. In most financing arrangements, the property will be used as collateral for the debt and during the mortgage’s duration, the lender is the mortgage holder on the property. The lender can secure full ownership to the property and resell it to another property should the homeowner default on the loan.
The mortgage loan in itself is somewhat different than a typical bank loan and they can be written for periods of twenty or thirty years. Mortgage financing, like other loans, requires the homeowner to fully repay the principal amount plus any applicable interest. The interest rate may be the same during the contract’s duration; in the alternative, there may be variable rate of interest, which allows the home owner to take advantage of lower property interest rates during the life of the mortgage.
It is also possible to obtain mortgage financing when there already is a mortgage with the property. Mortgage holders who have built up significant equity can consider refinancing their homes, should they need money. Mortgage refinancing is essentially trading in the first mortgage for a new mortgage. Monthly payments can shrink by refinancing the mortgage over a longer period. Homeowners who are interested in refinancing must apply for a new mortgage. The home will have to undergo an appraisal to establish its worth and the homeowner’s credit line will be examined. The lender will then order a title report on the property to search for any liens.
If the lender approves a new mortgage, the homeowner will meet with the lender or title company to sign the new mortgage. The only mortgage on the home after the finance will be the first loan, and so the new loan will in effect pay off the first mortgage in addition to other liens and mortgages on the property. Homeowners may find it beneficial to refinance their homes when interest rates decrease to a rate lower than when they first purchased the home. In determining the benefits of refinancing a home, the homeowner must calculate the long term savings with the refinancing and the length of time he would have to remain in the home to make the refinance worthwhile.
Types of Mortgage Instruments
The first instrument is the mortgage itself. In most states, the mortgage creates a lien on a mortgaged property. Should there be a foreclosure on the lien, a judicial proceeding will declare the debt to be due, in default, and the property must be sold to pay the debt.
The second instrument is the deed of trust, which is a deed by the homeowner to a trustee to secure debt. In most states, the deed of trust only creates a lien on the title but not a title transfer. Additionally, deeds of trust can be foreclosed by non-judicial sales held by trustees, as opposed to mortgages, though some can be foreclosed through a judicial proceeding as well.