A mortgage in a real property is a security interest in the possession of a lender for a debt security mostly in a monetary loan. A mortgage is not the same as a debt but is a security owned by the lender for a debt. It serves as a transfer of an equivalent interest in a land from the owner to the lender of the mortgage only on the condition that on the fulfillment of the terms of the mortgage, the interest will be returned to the owner.
In most districts of the world, mortgages are linked with loans obtained for a house and in other jurisdictions on land only. By this, a mortgage serves as the acceptable method for individuals and businesses to purchase and completely own a real estate property without having to pay for the full price immediately from their income.
In the United States and in most parts of the globe, when you borrow money to purchase an apartment, that debt is referred to as a mortgage. Banks usually take concrete steps to ensure that their loans would surely by paid by the debtor and with its interest. That is why the bank which in most cases is the lender will offer you the mortgage but will obtain a collateral which will serve as a security interest in the property you have bought.
Lenders often use a mortgage deed when they give out money that will be used in the buying of a house. Thus, the mortgage deed acts as a document that will condition the loan based on the lender’s security in the property.
WHAT IS A MORTGAGE DEED?
A mortgage deed can be defined as a document that provides the lender or mortgagee with the absolute legality in terms of right and interest in the property. Where a borrower or a mortgagor pledges his property or a home as a collateral in obtaining a loan, the lender’s ownership in the deal (property) is legalized in the mortgage deed.
HOW DOES A MORTGAGE WORK?
For you to obtain a loan from a lender to finance your purchase of a home, you will promise to repay the loan along with any interest that accrues. To give some backing to your promise, you will have to pledge you newly gotten property to serve as a security. If you fail to pay the loan, the bank will claim the property because of the legal rights they have over the property.
Your failure to pay will get the lender to begin the processes of selling out your property by which the proceeds from the sale will be used to settle the loan debt.
Mortgages have different rates, some can be fixed in rates while others can vary.
WHAT ARE THE DIFFERENT MORTGAGE RATES?
FIXED-RATE: In a fixed rate mortgage, you will have to pay the same interest rate every year until you repay the loan. In this case, you will pay the same amount you had paid in the previous year throughout the duration of the loan. You will not be affected by any fluctuations in interest rate in the market.
VARIABLE RATE: In a Variable rate, you will have to pay interests based on the current value of interest rate in the market. This implies that if the interest rate in the market goes up, you will likely pay higher for the year and if it plummets, you will certainly pay something lower. The type of rate that is linked to the mortgage and its terms determines the interest you will pay in relation to the changes in the market’s interest rates.
DEED OF TRUST
Deed of trust is a debt instrument with a strong resemblance to a mortgage. Its method of operation is like that of a mortgage but both have their differences. Three parties are involved in a trust deed which includes the borrower, the trustee, and the lender. The trustee, in this case, may be a bank or a company. The title of the lien is with the trustee who will handle the foreclosing process where necessary.
RIGHTS OF THE MORTGAGE DEED TO THE MORTGAGEE
The following are the two standard rights that the mortgage confers on the mortgagee which are a promise on the part of the borrower to pay the loan and powers of the lender to recover his money from the mortgaged property. With this right, the lender can proceed to the court if the borrower fails to fulfill his part of the bargain.
In addition to this, the mortgage deed offers two securities which include a personal responsibility and the property itself.
PARTIES INVOLVED IN A MORTGAGE OF PROPERTY
Several countries with different legal systems have their respective terminology regarding the naming of the various parties in the mortgage of property. The term mortgage general concerns the following parties which are: the borrower and the lender.
MORTGAGEE OR LENDER:
A lender in a mortgage is an investor who issues out the money secured by the mortgaging of a house. Presently, majority of the lenders sell the loans through the secondary mortgage market. The aim of the loan is to ensure that the borrower gets the property from either the lender or a third-party dealer. The lender or the mortgagee is vested with the rights to offer the property for sale if the borrower fails to pay the loan in due date.
The interest realized from the sales of the house will be used to clear the debt. Mortgage ensures that the lender recovers his money from the borrower at all cost.
In case the borrower transfers the property to another while the loan or the interest on the mortgage is yet to be paid, the mortgagee can sell the property because the mortgage runs with the land and not only the house which is located on the plot.
This will discourage the buyers from purchasing properties that are under mortgage. After the mortgage has been registered with the approved government registry, the borrower can get it discharge from the register after the loan must have been fully paid.
On the failure of the borrower to discharge the mortgage from the registry after the debt had been paid, it will be difficult for him to find a willing buyer if he wants to sell off the property.
In a mortgage, the borrower is known as the mortgagor. He is obligated to the secured mortgage. It is the responsibility of the borrower to meet the conditions of the loan which are necessary for the redeeming of the mortgage. On the condition that the borrower fails to comply with the terms specified in the mortgage deed, the mortgagee can foreclose the property to recover his monetary value of the loan. In many instances, the borrower can be a homeowner, company, and other estate management agents.
STEPS FOR THE REGISTRATION OF HOUSING MORTGAGES
- Execute the mortgage documents
- Affidavit to be sworn by two witnesses in the deed
- Visit the notary public who will get the document notarized
- Pay for the stamp duty
- Pay for the registration in the Registrar of Deeds office.
- Obtain the title for the mortgage.
NOTABLE POINTS IN THE DESIGN OF A MORTGAGE DEED
Among other information, the mortgage deed includes the following detail:
- Details of the property
- Name of the parties
- Loan sum and repayment
- Time for reconveyance of property
- Default in repayment
- Compensation received by the property
- Leasing of property
DRAFT COPY OF A MORTGAGE DEED
This Deed of Mortgage made at ————- this ———- day of ——— Between X, son of ————- resident of ————-hereinafter is known as a mortgagor of the One Part and Y, son of ——— resident of ——— hereinafter is known as a mortgagee of the Other Part.
The mortgagor is entitled to the property with No ——– located at ———- and described in the schedule hereunder;
The mortgagor has sought the sum of Rs ———- to be lend to him by the mortgagee for which the mortgagee has accepted on the mortgage of the property.
This Deed is to serve as a witness in pursuance to the agreement and in consideration this amount Rs ——- to be paid to the mortgagor by the mortgagee (the receipt of which has been acknowledged by the mortgagor by which the mortgagee is discharged). The mortgagor at this time has covenanted that he will pay the mortgage on ——– of ——– the sum of Rs ——- with interest at ——% per annum from the date of this deed to the fulfilment of the loan which shall be paid off on the ——— of ——- and subsequent installment of interest to be paid on ——– day of ——- until the loan is paid.
This deed is a witness that the mortgagor has transferred by mortgage his home at ———–
It is hereby accepted that on the condition that the mortgagor does not pay the said mortgage at the prescribed time included in this schedule, the mortgagee shall sell off the property to realize the amount of the loan with the interest.
And it is further accepted that the mortgagor shall ensure the said property during the time that the interest amount is not paid and that the property remains a security for the mortgage amount.
Whereas the mortgagor fails to ensure the property, the mortgagee shall insure the house while the amount for the premium will be added to the interest of the mortgagor which he shall bear the cost.
And it is agreed that the lease of the property in consideration can be granted by the mortgagor with the consent of the mortgagee which will be done in writing.
And the Mortgagor has agreed to bear the cost of stamp duty, professional charges, execution of registration deed and the registration fees.
The following parties are a witness and their names are as written hereunder:
The schedule above referred to
Signed by X as the name of the mortgagor
Signed by Y as the name of the mortgagee
Name and Signature of witness A
Name and Signature of witness B