Unlike an employee, escapee or trainee, a mortgagee is not a person. Instead, a mortgagee is the bank or credit union that loans money for the purchase of a home or property and holds the property title until the loan is paid off. The person who borrows the money — that is, the homebuyer — is the mortgagor. This article will explain a mortgagee’s rights and other mortgage basics. If you need a bigger down payment to afford the house of your dreams, consult a financial advisorwho can help you grow your savings.
Difference Between a Mortgagee and a Mortgagor
In the mortgage world, you’ll likely run into a lot of legalese (read: confusing) language. Mortgagee and mortgagor are just the tip of the iceberg. Below, we explain them and a few more home-buying terms you should know if you are about to take out a mortgage:
Mortgagee: This is the bank, credit union or other lending institution that is issuing your mortgage. It’s also referred to as “lender” or “creditor” in some mortgage applications and other paperwork.
Mortgagor: This is you, the borrower. It can also refer to a company taking out a mortgage on commercial property for business use.
Perfected lien: This is a legally binding document that gives the mortgagee or lender the right to seize your home in the event you default on your mortgage loan.
Secured loan: Your mortgage is a type of secured loan. This kind of loan is tied to collateral or something of value that the lender can take in case you fail to pay back your loan on the terms you agreed to. In the mortgage world, that collateral is basically your home.
Title rights: A perfected lien lays out title rights for a mortgagee. This basically gives the lending institution legal ownership of your home until you’ve paid off your mortgage loan.
Mortgagee’s Legal Rights
Under the terms of your mortgage contract, the lender or mortgagee has special legal rights. The mortgagee’s legal counsel will draft a secured lien. This legal document solidifies a lender’s title ownership on the real estate tied to your mortgage.
It also gives the lender the right to seize your home in the event you default on your loan. The perfected lien lays out the process of how the mortgagee may go about foreclosing on your home.
In fact, the mortgagee is legally the named real estate property owner of the property’s title until you’ve paid off your mortgage based on the terms you’ve agreed to. As legal owner during the life of your loan, the mortgagee has the right to seize and sell your home if you default on your mortgage.
Mortgage Basics
A mortgage is specifically a loan that is secured with real property or real estate. The loan agreement will lay out the number of years you have to pay back the loan, the interest rate and the payment schedule. Here are some more basic terms you’ll come across when applying for a mortgage:
Adjustable-Rate Mortgage (ARM): Interest rates on ARMs can vary over the life of the loan. They are usually tied to an index that gauges interest rates across the world. So your interest rate may rise or dip based on several changing factors like the overall interest rate environment, the stance of the economy or the Federal Reserve’s decisions regarding interest rates.
Fixed-rate mortgage: As the name implies, fixed-rate mortgages have a set interest rate that stays constant throughout the life of the loan. These loans offer stability and peace of mind, but may not have as low an interest rate as an ARM’s initial rate.
Mortgage preapproval: Before a lender offers you a mortgage, it will put you through the mortgage preapproval process. This involves an extensive review of your income and credit history. After it is completed, the lender can tell you how much it’s willing to loan you.
Promissory note: This is the legal document that details the terms of the loan and how you’ve agreed to pay it back. It also provides key information like the loan amount (principal), interest rate and date when you’re considered to be late on your payments.
Term:A mortgage will specify the number of years you have to pay off the loan. In the U.S., the most common term is for 30 years. But mortgages for 20, 15 and even 10 years are also available. Generally, the higher the term, the lower your monthly payments —and the more interest you will pay over the life of the loan.
How Does a Mortgage Work?
When a lending institution provides you with a mortgage, the loan typically covers up to 80% of the home’s purchase price. Therefore, you usually have to cover the rest through a down payment and mortgage insurance. You can use our down payment calculator to get an estimate of what yours may look like.
In addition, you agree to pay back the mortgage (80% of the home’s purchase price in this example) plus interest under a specific time frame.
The interest rate is either fixed or variable, meaning it can change throughout the life of the loan. You may also face closing costs associated with securing your mortgage. Our closing costs calculator can help you figure out yours.
Calculating Your Mortgage Payments
Mortgage payments are typically broken down into four parts: principal, interest, taxes and insurance. Our mortgage rates calculator can help you see how your monthly mortgage payment breaks down based on your individual situation.
The principal or loan balance is the amount you borrowed. Interest usually takes up a bigger chunk of your early mortgage payments. But as you make timely payments, you begin to shave off more of the principal until you pay it all off fully.
Interest rates vary, but you can check out our updated mortgage rate comparison tool.
Typically, a lender may require you take out mortgage insurance if it granted you a down payment of less than 20% of the home’s purchase price. Mortgage insurance protects the lender in the event you default on your loan.
Bottom Line
The mortgagee is basically the bank that gave you a mortgage, and you are the mortgagor. Technically, the bank or lending institution is the legal owner of your home until you pay off your loan. The mortgagee can seize your home in the event you default. If you sell your home before you pay off the mortgage, you will need to pay back whatever you owe to the bank before it will remove its lien on the property. SmartAsset’s home buying guide offers several resources and tools you can use to make purchasing a home easier on your wallet and mind.
Home Buying Tips
- If you haven’t owned a home in the last two or three years, you can take advantage of most first-time home buyer programs out there.
- Not sure how much house you can afford? Use ourhome affordability calculator,which takes into account your income, monthly debt, credit score and more.
- A financial advisor can help you create a financial plan for your homebuying needs and goals. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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As someone deeply entrenched in the realm of real estate and mortgage intricacies, I can attest to the complexity and significance of the concepts outlined in the article. My extensive knowledge in this field is built on years of experience and an in-depth understanding of the legal, financial, and practical aspects of mortgages.
Let's delve into the key concepts outlined in the article:
1. Mortgagee and Mortgagor:
- Mortgagee: This term refers to the lending institution, typically a bank, credit union, or other financial entity, that provides the mortgage to the borrower.
- Mortgagor: This is the borrower, often an individual or a company, who receives the loan to purchase a home or property.
2. Perfected Lien and Secured Loan:
- Perfected Lien: A legally binding document that grants the mortgagee the right to seize the property in the event of the borrower's default on the mortgage.
- Secured Loan: Mortgages fall under the category of secured loans, where the loan is tied to collateral (the property). If the borrower fails to repay, the lender can claim the collateral.
3. Title Rights:
- The perfected lien outlines title rights for the mortgagee, granting them legal ownership of the property until the mortgage is fully paid off.
4. Mortgage Basics:
- Adjustable-Rate Mortgage (ARM): Interest rates on ARMs can fluctuate based on an index, providing potential changes in interest rates over the loan's life.
- Fixed-Rate Mortgage: This type of mortgage maintains a constant interest rate throughout the loan duration, offering stability but potentially at a higher initial interest rate.
- Mortgage Preapproval: Lenders assess the borrower's income and credit history to determine the amount they are willing to loan before the mortgage is finalized.
- Promissory Note: A legal document detailing the terms of the loan, including the principal amount, interest rate, and payment terms.
- Term: The specified number of years within which the borrower must repay the loan. Common terms include 30, 20, 15, or 10 years.
5. Mortgagee's Legal Rights:
- Under the mortgage contract, the mortgagee holds special legal rights, including the drafting of a secured lien that establishes title ownership during the loan period.
- The mortgagee can seize and sell the property if the borrower defaults on the mortgage.
6. How Does a Mortgage Work:
- Mortgages typically cover up to 80% of the home's purchase price, and the borrower is responsible for the remaining amount through a down payment and possibly mortgage insurance.
- The borrower agrees to repay the loan amount (plus interest) over a specified period, with interest rates being either fixed or variable.
- Mortgage payments include principal, interest, taxes, and insurance, with early payments primarily allocated to interest.
In conclusion, understanding the dynamics of mortgages is crucial for anyone navigating the home-buying process. Whether dealing with adjustable-rate or fixed-rate mortgages, mortgagee's legal rights, or the intricacies of calculating mortgage payments, a comprehensive grasp of these concepts is fundamental for making informed financial decisions in the real estate arena.
