The common terms used to describe a mortgage involve the “creditor,” the “debtor,” and “mortgage broker.” It may be self-explanatory as to what those terms mean, but there are other terms involved with a mortgage as well that a homeowner may not be completely familiar with. Let’s cover some of them here:
The creditor is the financial institution, typically a bank, who provides the money in the form of a loan for the mortgage amount. The creditor is sometimes referred to as the mortgagee or lender.
The debtor is the person or party who owes the mortgage or the loan. They may be referred to as the mortgagor.
Many homes are owned by more than one person, such as a husband and wife, or sometimes two close friends will purchase a home together, or a child with their parent, and so on. If this is the case, both persons become debtors for that loan, and not just owners of the property.
In other words, be careful of having your name put on the deed or title to any house, as this makes you legally responsible for the mortgage or loan attached to that house as well.
Mortgage broker, financial advisor
Mortgages are not always easy to come by, however, because of the demand for homes in most countries, there are many financial institutions that offer them. Banks, credit unions, Savings & Loan, and other types of institutions may offer mortgages. A mortgage broker can be used by the prospective debtor to find the best mortgage at the lowest interest rate for them; the mortgage broker also acts as an agent of the lender to find persons willing to take on these mortgages, to handle the paperwork, etc.
There are typically other parties involved in closing or obtaining a mortgage, from lawyers to financial advisors. Because a mortgage for a private home is typically the largest debt that any one person will have over the course of his or her life, they often seek out whatever legal and financial advice is available to them in order to make the right decision. A financial advisor is someone who can become very familiar with your own particular needs, income, long-term goals, etc., and then give you the best advice on what your loan needs may be.
When the debtor cannot or does not meet the financial obligations of the mortgage, the property can be foreclosed on, meaning that the creditor seizes the property to recoup the remaining cost of the loan.
Typically, a home that is foreclosed upon will be sold at auction and that sale price applied to the outstanding amount of the mortgage; the debtor may still be liable for the remaining amount if the property sold for less than the outstanding balance of the mortgage.
For example, suppose a person still owes $50,000 toward their mortgage, and their home is foreclosed. At auction, the home is sold for only $45,000. The debtor is still responsible for that remaining $5,000 difference.
Most banks and financial institutions will try to avoid foreclosing on any of their debtor’s property if at all possible. Not only do they run the risk of not being able to sell the home at auction for any price, but there are also additional costs and risks incurred when the home is vacated by the previous owners. This includes vandalism, squatters (persons who trespass onto vacant land or into vacant amerinet mortgage homes and stay there until forcibly removed), fines from cities for unkempt yards, and so on.
Annual Percentage Rate (APR)
The APR is not to be confused with a mortgage’s interest rate.
The APR is a loan’s interest rate plus the added costs of obtaining the loan, such as points, origination fees, and mortgage insurance premiums (if applicable).
If there were no costs involved in obtaining a loan other than the interest rate, the APR would then equal the interest rate.
The breakeven point is the length of time it will take to recover the costs incurred to refinance a mortgage. It is calculated by dividing the amount of closing costs for refinancing by the difference between the old and new monthly payment.
For example, if it costs you $5,000 in fees, penalties, etc., to refinance your mortgage, but you save $300 per month on your payments with your new mortgage, the break-even point is after 17 months (17 months x $300 per month = $5,100).