How Does A Mortgage Loan Work?
When you get a mortgage, your lender provides a set amount of money to buy a home. You agree to pay back your loan with interest over various years. The lender's rights to the home remains until the mortgage is fully paid off. Fully amortized loans a have a set payment schedule that ensures the loan is paid off by the end of the loan.
Mortgages are secured loans, and secured loans are backed by collateral. In the case of a mortgage, the collateral is the home. If a borrower falls behind on their loan payments or fails to meet mortgage terms, the mortgage loan agreement gives a lender the right to repossess the home.
Mortgages differ from some other loans in a unique way. If you can’t repay your mortgage loan, your lender can sell your home to recoup losses. But that’s not the case if you fail to make personal loan payments, for example. Since personal loans are unsecured, you don’t have to worry about losing your home or any other asset if you fall behind on payments.
Who Are The Parties Involved In A Mortgage?
Usually a borrower, lender, title company, maybe even a co-signer and even a few more.
Mortgage Lender
A mortgage lender is a financial institution that provides the money to buy a home. Your lender may be a bank, or a credit union.
When you apply for a mortgage, your lender reviews your finances and credit history – including your credit score, income, assets and debt – to confirm that you can afford your loan payments and verify that you meet lender and loan requirements.
Borrower
The borrower is the person in need of a loan to buy a home. You can apply as the only borrower or apply with a co-borrower. Adding more borrowers to a mortgage can increase the total amount you can borrow. Combining everyone’s income will likely help you qualify for a more expensive home.
Co-Signer
A lender may ask a borrower to get a co-signer for mortgage because their credit history is weak or they have no credit history. While the co-signer has no ownership rights, they agree to share the financial responsibility of repaying the mortgage if the primary borrower defaults on loans.