When it comes to financial matters, half the battle is understanding the jargon. When you wade through the weeds, though, you’ll likely discover that you may not have heard of a particular term, but it’s just another word for something you are familiar with, like mortgagors, who are home loan borrowers.
The mortgage universe can be a bit complex. It’s helpful to understand the basics of mortgages.
What Is a Mortgagor?
It’s not every day that you see the term “mortgagor.” It doesn’t roll off the tongue easily, and you might think perhaps it’s misspelled. But alas, mortgagor is just another word for someone who is borrowing money from a mortgage lender (the mortgagee) to purchase real estate.
The Function of a Mortgagor
The mortgagor makes monthly payments to the mortgagee as specified in the loan agreement. The terms of a mortgage can vary widely. For example, depending on the applicant’s credit history, the interest rate may be higher or lower than the average.
A mortgagor may choose from different types of mortgage loans that most commonly have a fixed interest rate and a term of 30 years, though many lenders also offer loan lengths of 20, 15, or 10 years. A fixed-rate mortgage has an interest rate that remains the same during the life of the loan. A variable-rate mortgage is one in which the interest rate moves up and down with the market.
The bottom line: Mortgagors must pay back the loan in a timely fashion. If not, mortgagees can force foreclosure of the home or other real estate — the collateral for the loan.
How a Mortgagor Gets a Mortgage Loan
A mortgagor applies to a mortgagee for a mortgage. Conventional mortgage loans are originated by private lenders like banks, credit unions, and mortgage companies. Certain private lenders also originate FHA, VA, and USDA loans; those loans are insured by the Federal Housing Administration, Department of Veterans Affairs, and U.S. Department of Agriculture. Government-backed loans are often easier to qualify for and may have more lenient terms and lower interest rates.
No matter what kind of mortgage loan you seek, expect to jump through many hoops and produce much documentation to prove you are creditworthy and have the means to pay back what you borrow.
Anticipate a hard credit inquiry into your credit scores and credit history.
Understand what makes up your credit scores. Important factors include your credit history, how long you’ve had your lines of credit open, your payment history, and debt-to-income ratio, which is the total amount of your monthly debt payments divided by your gross monthly income. If your debt-to-income ratio is high, that may be a no-go in the eyes of a lender, who may see you as tapped out with no real wiggle room to take on a mortgage.
You take on a mortgage loan minus any money you put forth as a down payment. While you may be able to get an FHA loan with 3.5% down, or a VA loan with no down payment at all, a typical down payment is around 12% of the value of the loan.
Contractual Obligations of Mortgagors
A deal is a deal is a legally binding deal. Once the ink dries on that mortgage, you’re locked into your commitment to pay as you said you would. If you veer off course, you’re at risk of losing the home, as there is a lien on the real property as collateral for the loan.
At the very least, late or missed payments will cause your credit score to dip, which could be problematic the next time you need to show your credit score, be it for a car loan or maybe even a potential employer.
Equity of Redemption
If this phrase sounds important, it is. You’ll be thankful for it if you have gotten behind on your mortgage. Equity of redemption, also called right of redemption, will give you a chance to get caught up and keep your home before a foreclosure sale.
When you miss payments, one or more mortgagees can start the foreclosure process. They can take back the house and sell it at auction to pay off the debts. If they’ve begun this, you may be able to redeem the mortgage using equity of redemption.
Understand that you’ll need to come up with the money to pay off the principal, interest, and expenses under equity of redemption. Realistically, if you’re in financial trouble, a funding source to pay off the loan is unlikely.
Some states have a law that gives mortgagors the right to redeem the home for a period of time after the foreclosure sale. With the statutory right of redemption, usually the borrower must pay the bid price, plus interest and fees, to the buyer of the property at the foreclosure sale.
Rights of Mortgagors
While it doesn’t have to be a battle royal, when it comes to mortgagee vs. mortgagor, the mortgagee holds the keys to the kingdom. The lender put up the money, and if the borrower can’t make the mortgage payments, the lender has the right to take the house.
That’s not to say you are without a few good things in your back pocket, like the aforementioned rights of redemption. You can also ask that your mortgage be transferred to a third party, but only if the mortgagee is not in possession of the property.
Mortgagors vs Mortgagees
To lessen any confusion, here’s a quick look at who does what.
|Makes monthly payments||Sets loan terms, including length of loan, payment due dates, and interest rate|
|Meet all terms of the mortgage||Receives payments|
|When the loan is paid in full, gets the deed||Can seize property if mortgagor stops paying|
|Must communicate the terms of the mortgage clearly|
Thinking About Buying a House?
If you’ve been dreaming of taking the homeownership plunge, you might want to start with this home loan help center.
And do some crunches with a mortgage calculator to see how much you could save on your mortgage with different down payments.
Then, when you’re ready to search for financing, look into a home mortgage loan with SoFi. SoFi’s fixed-rate home loans come with competitive rates, and qualified first-time homebuyers can put just 3% down.
Photo credit: iStock/fizkes
*Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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