A loan is basically a kind of debt owed by an entity or an individual to another entity. The creditor usually a bank, private lender, or government lends money to the debtor. In exchange, the debtor agrees to some set of terms such as repayment schedule, interest, and other terms. The debtor is required to repay the loan by a specified time, most often in his or her next paycheck. If payments are missed, penalties will follow.
There are several types of loans. For instance, there are home equity loans that an individual would owe on his or her property. Others are car loans, refinance loans on a home, student loans, personal loans, mortgages, and so on. Each kind of loan has different terms and conditions. An individual borrower would owe his principal and interest only when he or she avails of a loan.
When a loan is taken out, the amount of the loan is the principal. Interest is the added cost on top of the principal. There are also two kinds of interests: mop promissory note and first lien. The mop promissory note gives the lender the right to collect the principal from the borrower.
First lien, also known as a “stamp,” is a lien only. It does not transfer ownership of the property. On the other hand, a “springing” deed, also called a “right-to-use,” transfers ownership but does not give the lender the right to collect the loan. Mortgage lenders use these words for different purposes. Here are the definitions:
Mortgage lien (1) This type of loan gives borrowers the right to live in a home but does not include the security of the property. Borrowers have the option of paying the full principal plus interest and then making payments with their second mortgage. If they want to stay in the home, they can do so by paying the remaining debt plus interest. However, if they want to leave, they will have to pay off the remaining debt plus interest. If the borrowers fail to make payments, the mortgage lender can obtain legal action against them. For this reason, it is not uncommon for borrowers to use this method of borrowing just in case of financial emergencies.
Mortgage loan applications (2) This type of mortgage loan application is used when there is little or no equity in the home and the lender wants to guarantee repayment of the loan. With this type of loan, the mortgagor is usually given permission by the lender to use his or her property as collateral. In return, the lender extends the loan terms and interest rate. The home loan application makes sure that the loan repayment terms will be favorable to both the lender and the mortgagor.
Fixed-rate loans and mortgages: Most homeowners prefer these types of loan because they do not give the borrower adjustable interest rates and other variables. When applying for a fixed-rate loan, homeowners fill out an application in which they state the amount they need to borrow and the type of collateral they want to use. After getting approval, the loan goes through the Home Office Building. From there, the mortgagor and the lender meet inside the building and sign an agreement. Afterwards, a deed is recorded and ownership is transferred to the mortgagor. The interest rate on this type of loan is usually low.
After approval, a final deed is issued with ownership transferred to the lender. This type of loan also allows the borrowers to pay the principal balance at any time instead of only once. A deed is the last step before the loan gets posted to the equity.