U.S. Markets closed

Who Is the Mortgagee in a Home Loan?

Javier Simon, CEPF®
mortgagee

A mortgagee is a lending institution that issues mortgages. In most cases, the mortgagee is a bank or credit union. The mortgagee has special legal rights on the real estate that mortgages are tied to. This article will explain what a mortgagee does and how your mortgage works. We can also help you find a financial advisor in your area who can guide you through the entire home buying process.

Difference Between a Mortgagee And a Mortgagor

In the mortgage world, you may run into a lot of confusing language. But don’t fret. We’ll break down some of the home buying jargon, so you can focus on making the most of your new home. Below, we list a few common terms you should know:

Mortgagee: This is the bank, credit union or other lending institution that issued 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.

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 signed off to. In the mortgage world, that collateral is basically your home.

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.

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.

What Can A Mortgagee Do?

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 documentation 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 completing this process.

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.

As you can see, you can face serious consequences if you default on your mortgage. So we’ll explain exactly how it works and help you find the one with terms that are right for you.

Mortgage Basics

A mortgage involves plenty of moving parts. So let’s cover some of the basics to help you understand how a mortgage works. Below, we break down some more common terminology”

Mortgage preapproval: Before a lender offers you a mortgage, it may need to put you through the mortgage preapproval  process. It involves an extensive review of your income and credit history. However, the lender can tell you how much it’s willing to loan afterward.

Mortgage: Your home loan is not actually a mortgage until the lender has secured legal ownership of the real estate that the loan is tied to for the life of the loan.

Promissory note: This is a 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.

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.

Common mortgages span 15 years or 30 years. The interest rate is either fixed, or 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

mortgagee

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.

Types of Mortgages

When you’re out hunting for the right mortgage, you should consider which kind fits your financial situation. You typically have the following types of mortgages to choose from.

Fixed-rate mortgage: As the name implies, fixed-rate mortgages are tied to a set interest rate that doesn’t change throughout the life of the loan. These loans offer stability and peace of mind. But you’d miss out on the low interest rates you may secure with adjustable-rate mortgages (ARMs).

Adjustable-Rate Mortgage (ARM): Interest rates on ARMs can vary throughout 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.

The Takeaway

mortgagee

The mortgagee is basically the institution that provided you with your mortgage. However, the mortgagee is also the legal owner of your home until you’ve paid off your mortgage under the terms you signed off to. It can seize your home and sell it in the event you default. That’s why it’s essential that you understand how a mortgage works and what you really cover with each of your monthly payments. The SmartAsset 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’re not sure about a specific mortgage time frame, you can compare current 30-year mortgage rates alongside 15-year mortgage rates.
  • You can also use our home affordability calculator to make wise financial decisions on securing a mortgage that’s right for you.
  • 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.
  • The home buying process can be complex, so professional guidance can go a long way. You can use our financial advisor matching tool, which connects you with up to three qualified financial advisors in your area. We vetted each one, and the tool also provides you with in-depth profiles. You can review these to compare their qualifications and certifications before you decide to work with one.

Photo credit: ©iStock.com/PeopleImages, ©iStock.com/Doucefleur ©iStock.com/sturtiA

The post Who Is the Mortgagee in a Home Loan? appeared first on SmartAsset Blog.

Related Articles: