A mortgage is the transfer of an interest in a property, usually real estate. A creditor typically receives the interest in the property from a debtor in exchange for a loan. A mortgage loan is essentially a loan for which the real estate serves as the collateral. The interest in the property is returned to the debtor once the conditions of the mortgage have been satisfied. This generally occurs when the debtor pays off the mortgage loan. The term "mortgage" is commonly used to refer to the associated loan rather than the actual transfer of interest in a property.
Mortgage by Legal Charge
The most common type of mortgage in the United States is a mortgage by legal charge. The debtor remains the owner of the property in this type of mortgage but the creditor retains certain rights over it. These rights must be sufficient to allow the creditor to enforce the loan. This generally means that the creditor has the right to sell the property if the debtor defaults on the loan payment. A creditor will typically perform a title search on the property to find if there are any liens on the property before granting a mortgage.
Mortgage by Demise
The creditor becomes the owner of the property in a mortgage by demise. Ownership of the property then reverts to the owner once the mortgage obligation is fulfilled, which usually means that the loan has been repaid. Mortgage by demise was the earliest form of mortgage and is still used in some states.
Calculation of Interest
The amount of the payment for the mortgage loan can be calculated with the following equation: P = L x [i x (1 + i)^n] / [(1 + i)^n - 1]. The amount of the payment is P, the amount of the loan is L, the interest rate is i and the number of payments to make is n. The interest rate in this equation must be the interest rate for the payment period, which is usually monthly. The interest rate must also be expressed as a decimal fraction rather than a percentage. For example, a monthly interest rate of 0.6 percent should be entered into the equation as 0.006.
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