User:Stefan002377

 Early mortgage history

In the early years, a mortgage - property pledged to secure a debt - was an actual assignment of that property to a lender. During the period of time that the mortgagor still owed the mortgagee part of the original loan, the lender had physical use of the land and was entitled to any rents or revenues generated from the land. Thus, in the earlier forms of mortgages, title to the land pledged as security for a loan was truly transferred to the lender.

Abuses on the part of lenders brought about more careful wording in the mortgage instruments. Slight delays in repaying the loan often resulted in "legal default," with borrowers forfeiting any rights to the recovery of title to their land. An outgrowth of the early experiences of both lenders and borrowers is the current day distinction between the title theory and lien theory of mortgages.

Lien Theory

Lien Theory is a more modern approach to creating loan security and is used in most states. In lien theory states, the lender is considered to hold a lien, rather than title, against the property for security of the debt. A lien is the right to have property sold to satisfy a debt. In the event of default on the promissory note, foreclosure proceedings are initiated, and the title is conveyed from the borrower to the lender. The mortgage remains with the property until the debt is paid, even if ownership of the property changes.

Mortgages by method of payment

1. Straight (or straight-term mortgage)

A loan in which only interest payments are made periodically with the entire amount due at maturity is called a straight (or straight-term) loan. Although such loans are not used frequently to finance the purchase of single-family houses, they are used quite often in land transactions. In these situations, developers will be able to pay for the land after development and sale. In the interim, they pay interest only.

2. Standard fixed payment mortgage

A standard fixed payment mortgage (SFPM) is a fully amortized loan that is completely paid off by equal, periodic payments. This is the standard type of loan used to finance single-family homes today. It is also used sometimes for income-producing properties, although partially amortized loans are used often more frequently to finance these properties. Payments on fully amortized mortgages are usually required monthly. At maturity of the loan, the loan balance is zero.

3. Partially amortized mortgage

If a loan is not completely paid off by equal, periodic payments, but periodic payments are required, it is a partially amortized loan. In other words, the loan will be partially paid off by periodic payments, but there will a remaining balance on the loan which must be paid off at maturity. This remaining balance on a partially amortized loan is called a^ balloon and is satisfied by a balloon payment.