Mortgages are loans for buying homes. Like any other loan, a mortgage must be secured against another asset. The asset that is used to secure mortgages can be the property that the mortgage is used to buy. Protection is not arbitrary. There must be documents that show that a mortgage lender and borrower have agreed to use a property to protect a mortgage. This document is referred to as mortgage deed. The other document that can also be used to protect mortgage is the trust deed. These documents serve the same purpose as far as mortgage protection is concerned. The difference between them is the ease with which a lender can foreclose a property in case of default in mortgage repayment.
Contents of Mortgage deeds
Mortgage deeds are a document with a collection of agreements from both the lender and the borrower. It includes conditions of the mortgage, repayment schedule, length of the mortgage, mortgage rates, type of mortgage and security for the mortgage. As a borrower, you have to understand the terms and conditions thoroughly and may ask professional help to analyse it. The terms are legally binding and can be enforced by law if you fail to pay the mortgage during the repayment period.
Importance of Mortgage deeds
Borrowers are expected to repay their mortgages over a given duration of time. This duration of time varies with the size of the mortgage and the amount of monthly or biweekly instalment that a borrower must make. Mortgage repayment can extend for as long as 30 years. The long duration of mortgage repayment allows the buy to repay comfortably without going through a tough financial crisis.
Lenders usually ensure that a buyer is fit for a mortgage before giving out the money. Every financial information about a purchaser is thoroughly analysed. A buyer must have a good credit rating and a steady income to qualify for a mortgage. Credit ratings are obtained from the buyer’s credit company. The buyer’s income can be verified by analysing his employment record and salary or, for unemployed buyers, their tax returns as edited by a certified public account. These pieces of information show the financial stability of a buyer and his ability to repay his debts.
The presence of a property is not sufficient to guarantee that a buyer will repay his dues or that a lender will fully recover his money. Even verification of financial stability and credit ratings are not enough to guarantee lenders that their money will be repaid in time. Mortgage deed and trust deeds are the only ways lenders can rest assured that they will recover their money.
Failure to abide by Mortgage deeds
Most mortgage deeds allow lenders to foreclose a property after 60 days of default in outstanding payment. Foreclosure involves selling off a property and using the money to pay off debts owed by a buyer. Foreclosure is usually the last resort for most lenders. Foreclosure comes at a time when buyers are not prepaid to seek additional means of accommodation. The buyers do not have the money to spend on rent or purchase of another property. Rents are usually even more expensive than mortgage. A borrower whose home is foreclosed can either move in with a relative or be rendered homeless.
There are many other ways that a borrower and his lender may come to an agreement without having to foreclose. A borrower may negotiate to agree on a new method of repayment that suits them both. This should be done way before foreclosure is considered. Foreclosure must also be undertaken in a way that a buyer is fully satisfied with. The decision to foreclose cannot appear to a lender from out of the blues.