A mortgage is a form of loan that transfers ownership of a home (or other real estate) from a borrower to a lender (usually a bank). The loan is said to be secured on the home.
A mortgage document creates a detailed contractual relationship, imposing obligations on the borrower and lender.
Mortgages are commonly made to assist with the purchase of a home, or to fund home repairs, children's education, or health expenses.
Banks often make a mortgage offer in writing and the offer terms must be satisfied before an advance is made to a borrower.
Frequent offer terms are that an attorney must confirm the borrower's title to the property, the property must be insured for a specified minimum sum and that the borrower has signed the relevant documents, including the mortgage deed. Other common requirements are for valuation fees and arrangement fees to be paid.
Borrowers have no rights against either the bank or its surveyor for any defect in a bank valuation, or for the failure to disclose, for example, structural problems. For this reason, a purchaser should organise his or her own survey.
Loan terms and bank valuations are intended to protect
the bank's interest -- not the borrower's -- so that the
bank has an easily marketable property in the unfortunate event of default. Such terms are written in the form of various covenants, agreements, declarations and definitions in the mortgage document. The wording may vary from bank to bank, but the effects are similar.
Loan terms cover repayment details, interest rate adjustments, administrative charges, minimum early repayment notice and/or penalties, insurance, as well as the use and maintenance of the property.
An obligation to pay a mortgage loan is not limited to the value of the property. Payment is required even if the loan value exceeds the property value.
Bermuda mortgage obligations cannot be escaped by handing the keys over to the bank, if making payments proves difficult. Even if a bank sells a mortgaged property, the borrower remains liable for any part of the loan not recovered by the proceeds of sale.
In the event of a bank sale, mortgage terms permit a bank to remove, store, sell or otherwise deal with any items, or animals, on the property.
Commonly, banks reserve a right to call in a mortgage loan for repayment in full, at any time, usually with at least a month's notice. In practice, loans are not called in unless the borrower is in arrears.
Until repayment, a mortgaged property cannot be let, or occupied by any other person, without the bank's written consent.
A borrower must keep mortgaged property in good repair and condition. No structural alterations or additions are permitted without the bank's written consent.
The borrower must insure mortgaged property, with comprehensive cover in the name of the bank, for the duration of the loan.
The borrower must pay all Government property taxes as and when due.
No further loans, mortgages or charges can be secured on the property without the bank's written consent.
In the event of default, it is usual for a bank to charge delinquency fees, as well as requiring the payment of arrears.
Early repayment of a loan may trigger a penalty payable to the bank. Often, early repayments are permitted without penalty, but only after appropriate notice is given.
After a mortgage loan is repaid, the lender has an obligation to transfer the property back to the borrower by way of a document known as a reconveyance. Commonly, the borrower is responsible for reconveyance costs.
A mortgage document can make frightening reading, however as long as payments are made in full when required -- and the property is maintained and insured -- a bank has no commercial interest in disturbing a borrower.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
