Understand what mortgage is and how it works in the US

A very frequent question among people looking for information about mortgage loans is to understand what mortgage is. If that is what you are looking for, know you are in the right place. In this article, you will be able to answer all your doubts about the subject and you will find out how to use your property to get a loan at competitive mortgage rates.

How the mortgage works

Mortgage is a very popular line of credit in the US. It consists of placing a property as collateral to get a loan with low interest and long terms. When the borrower mortgages a property for credit, that property becomes bank’s asset, indirectly. There is a reason why bank does it. If the property still belongs to the borrower, it would be difficult for the financial institution to repossess the asset in the event of non-payment of the debt. The bank must seek for legal help and the procedures must be done in court. The process can take years to recover the damage.

Loan with property guarantee

In this case, the owner transfers the fiduciary ownership of the property to the financial institution until the end of the contract. The owner continues to live in the residence and the property remains in his name, but the property’s registration contains the chattel mortgage. Therefore, the institution has indirect ownership of the property and the owner continues with direct ownership, enjoying the property. It is done to make the resumption process simpler. This method guarantees more security to banks and therefore the customer gets lower rates.

How mortgage works in the United States?

When the owner of the property purchased it via mortgage and uses his property as collateral for another loan, it is called a second mortgage, or home equity. This model became popular for offering a longer payment period and for allowing a greater contribution of credit. The customer makes a small down payment and installments the rest of the amount in up to 30 years. Still, in the US, the mortgage sector is very strong and as one of the main financial sectors in the country, it has several government incentive programs.

Difference between mortgage and chattel mortgage

Both cases are ways that banks use to carry out the property refinancing operation. With the chattel mortgage, the creditor finds it easier to take the asset, without having to file legal remedies. This translates to less risk of loss for creditors. In the mortgage, the repossession of the asset is very complex.