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A mortgage is a way to use one's real property, like land, a house, or a building, as a guarantee for a loan to get money. Many people do this to buy the home they use for mortgage: the loan provides them the money to buy the house and the loan is guaranteed by the house.
In a mortgage, there is a debtor and a creditor. The debtor is the owner of the property, while the creditor is the owner of the loan. When the mortgage transaction is made, the debtor gets the money with the loan, and promises to pay the loan. The creditor will receive money back with interest over time (usually in payments made each month by the debtor). If the debtor does not pay the loan, the creditor may take the mortgaged property in place of the loan. This is called foreclosure.
In the 2008 American economic failure, creditors lent money to debtors who could not pay back that money. This lowered housing prices and hurt the economy.
Types of mortgage
===Simple mortgage=== In a simple Mortgage, the Mortgagor, without delivering the possession, bounds himself personally to pay the Mortgage money and agrees expressly (or impliedly) that, in case of failing to pay the debt according to contract, the Mortgagee will have the right to sale the mortgage property or to proceed to be applied so far as may be necessary. There is no foreclosure of the mortgaged property. According to Section 58(b) of the Transfer of Property Act, a simple mortgage is a transaction whereby ‘without delivering possession(ownership or occupancy) of the mortgaged property, the mortgagor binds himself personally to pay the mortgage money and agrees, expressly or impliedly, that in the event of his failing to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold by a decree (an order of law) of the court in a suit(a case in a law court) and the proceeds of the sale to be applied so far as may be necessary in payment of the mortgage money;
The borrower promises to repay the borrowed money on a certain date. The borrower transfers the property to the lender. The lender will re transfer the property when the money is repaid. The mortgaged property is absolutely transferred to the mortgagee.
A reverse mortgage is a loan where the lender pays the monthly installments to the borrower instead of the borrower paying the lender. The payment stream is reversed. A reverse mortgage allows people to get tax-free income from the value of their home. They are mainly to improve older people's personal and financial independence.
Usufructuary mortgageThe lender takes the property. The lender receives income from the property (rent, profit, interest, etc.) until the money is paid back. The owner keeps the title deeds.
- Transfer of property act 1882, Section 57(a)