A mortgage is the pledging of a property to a lender as a security for a mortgage loan. While a mortgage in itself is not a debt, it is evidence of a debt. It is a transfer of an interest in land, from the owner to the mortgage lender, on the condition that this interest will be returned to the owner of the real estate when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.
The term comes from the Old French dead pledge,apparently meaning that the pledge ends (dies) either when the obligation is fulfilled or the property is taken through foreclosure. In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than other property (such as ships) and in some jurisdictions only land may be mortgaged.
Arranging a mortgage is seen as the standard method by which individuals and businesses can purchase residential and commercial real estate without the need to pay the full value immediately. See mortgage loan for residential mortgage lending, and commercial mortgage for lending against commercial property.
The measurement of a mortgage with regards to cost to the borrower can be measured by Annual Percentage Rate (APR) or many other formulas for true cost such as Lender Police Effective Annual Rate (LPEAR).In many countries it is normal for home purchases to be funded by a mortgage. In countries where the demand for home ownership is highest, strong domestic markets have developed, notably in Spain, the United Kingdom, Australia and the United States.
A commercial mortgage is a loan made using real estate as collateral to secure repayment.A commercial mortgage is similar to a residential mortgage, except the collateral is a commercial building or other business real estate, not residential property.In addition, commercial mortgages are typically taken on by businesses instead of individual borrowers. The borrower may be a partnership, incorporated business, or limited company, so assessment of the creditworthiness of the business can be more complicated than is the case with residential mortgages.
With traditional mortgages, there is a limit on how much money is available based on the purchaser's income. The cost of housing must not exceed 35% of the household income (Housing to Income Ratio), and the household's total debt cost must not exceed 45% of the household income (Total Debt to Income Ratio). This is to ensure that after the mortgage is granted, the household will have the ability to pay for all other obligations.
In high density, transit-rich environments, the cost associated with transportation is greatly reduced. This reduction is, for example, $350-$650 per month in Chicago, Illinois. When this extra savings is factored in, the Housing to Income Ratio can be as high as 39%, and the Total Debt to Income Ratio may be as high as 50% to qualify for a loan.
In a mortgage by legal charge or technically a charge by deed expressed to be by way of legal mortgage,the debtor remains the legal owner of the property, but the creditor gains sufficient rights over it to enable them to enforce their security, such as a right to take possession of the property or sell it.
To protect the lender, a mortgage by legal charge is usually recorded in a public register. Since mortgage debt is often the largest debt owed by the debtor, banks and other mortgage lenders run title searches of the real property to make certain that there are no mortgages already registered on the debtor's property which might have higher priority.
Tax liens, in some cases, will come ahead of mortgages. For this reason, if a borrower has delinquent property taxes, the bank will often pay them to prevent the lienholder from foreclosing and wiping out the mortgage.