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New Jersey Mortgages

March 29th, 2022

A mortgage is a financial option for using property as security for payment of a debt. Technically it refers to the legal device used in securing a debt, but popularly it now refers to the debt itself. A mortgage is mostly associated with real estate.

A mortgage is the usual method by which people buy commercial and residential property. A strong domestic market for mortgages has developed in regions where demand for home ownership is high. New Jersey has a strong market for mortgages.

The participants in a mortgage are 1) the creditor or the mortgagee- who gives the loan and accepts temporary ownership of the property. Typically they are banks and insurers. 2) Debtor or mortgagor or borrower- people who have to meet the debt conditions given by the creditor. They are typically house and property owners who buy this property using the loan. 3) Lawyer may be present to provide legal advice and provide legal sanction for the deal. 4) Mortgage financer or broker who will help find the most competitive loan.

In the US, mortgages gained popularity in 1934, when the Federal Housing Administration (FHA) lowered down payments on mortgage loans and lengthened loan terms to 10, 20 and 30 years. This encouraged a spurt and by 2000, nearly 70 % of households owned homes compared to 40% in 1940.

Repayment of loan is mostly through amortization, i.e. to make regular payments of interest and capital over a fixed period. Repayment can be made through capital and interest payments, interest only payments, no capital or interest payments and interest and partial capital payments called a “balloon loan.”

There are many types of mortgage loans. The two types of amortized loans are Fixed Rate Mortgage (FRM) and Adjustment Rate Mortgage (ARM). In FRM, the monthly or interest payments remain fixed for life of the loan usually for 10, 15, 20 or 30 years.

In ARM, interest is fixed for a period of time after it will be adjusted according to some market index like The Prime Rate, LIBOR etc. A Balloon loan is when monthly payments are calculated for a short period of time but outstanding principal balance is due at some point of that short term.

The first step to obtain a mortgage is to submit an application and documentation related to financial history to the underwriter. Sometimes a mortgage broker may select the best creditor to secure a loan. Recent innovation includes automated underwriting to simplify the process of checking financial history like “Freddie Mac” and “Fannie Mae.”

In addition, mortgagers have to pay certain fees to the creditor when securing a mortgage. These include entry fees; exit fees, administration fees and lenders mortgage insurance. Mortgage lending is a major business activity in America.