Definition of 'Mortgage'
A mortgage is a debt instrument that is secured by a lien (a claim) on specified real estate property. The borrower, mortgagee, is require to pay back the debut over a fixed period of time, usually 30 years, however 15 year mortgages are also common. Interest rates on mortgages of 15 years will be lower than those of 30 year mortgages.
A mortgage is a lien against property and creates a claim on that property by the mortgage holder. In some countries mortgages are called bonds.
Mortgages are typically used by individuals and businesses who are unable to come up with the large amount of cash required to buy the property outright and up front.
In the event that the property owner is unable to make their mortgage payments the mortgage holder (usually a bank) has the right to foreclose on the property and evict the occupants of the property in order to sell the asset and clear the mortgage debt. In the event that sale more than covers the mortgage debt and foreclosure costs the balance will be returned to the previous owner. This rarely happens as the property owner would have usually sold the property themselves in order to relieve the debut and not be lumbered with a foreclosure on their credit score.
Since the housing bubble burst in 2006 there are many homeowners who are sitting on negative equity in their homes and are unable to sell their homes as a result. Negative equity is when the mortgage is greater than the value of the home.
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