Mortgage loans are financial loans taken for real estate properties that the borrower
has to repay with interest within a fixed period of time. A mortgage loan requires some
sort of security for the lender. This security is called the collateral and in most
cases, it is the real estate property itself for which the mortgage loan has been
taken. Since the property itself is kept as collateral, no further security is
The person who lends the mortgage loan is called the mortgagee, while the person who
borrows the loan is called the mortgagor. The mortgagee and mortgagor are bound by the
mortgage loan agreement. The agreement entitles the mortgagor to receive a financial
loan from the mortgagee. The promissory note in the agreement secures the mortgagee,
which entitles them to the collateral and a promise made by the mortgagor to repay the
mortgage loan in due time. In the USA, the typical period for a mortgage loan maybe
10, 15, 20, or 30 years.
There are two fundamental types of mortgage loans in the USA � fixed-rate mortgages and adjustable-rate mortgages. Fixed-rate mortgages have interest rates that are locked for
the life of the mortgage, while adjustable-rate mortgages have interest rates that may
go up or down according to some market index. Hence, fixed-rate mortgages provide
security to the mortgagor, while adjustable-rate mortgages provide security to the
mortgagee. If there are dues on monthly payments, then they are added together and
constitute a balloon mortgage loan.
The process of buying a loan is called originating the loan. This is done between the
mortgagor and the mortgagee, sometimes involving a mortgage broker. The broker charges
a commission on every loan originated, which is collected from either the mortgagor or
the mortgagee. A broker’s involvement increases the cost of the entire mortgage.
Mortgage loans below 80% of the entire property value need added security for the
mortgagee. This is done in the form of insurance policies, called mortgage insurance.
The premiums of mortgage insurance policies are passed on to the borrower in their
monthly payments. However, if the mortgagor makes at least 20% of the down payment,
then the mortgage insurance may be waived.
In the US, there are several types of mortgages available. The most important mortgages
are those which are originated from the Federal Housing Administration. These very
popular loans are called Fannie Mae, Freddie Mac, and Ginnie Mae loans. Fannie Mae
mortgages are the most popular types of mortgage loans in the USA.
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