Two Common Types Of Mortgage

The following article gives information on Two Common Types Of Mortgage. If you are going to invest in one particular business but you have no money to put in, you can apply for a loan. Usually lending companies do not immediately release your loaned amount unless they have received security from your loan application. This security may come in different forms. One of the common securities is the use of mortgage.

Two Common Types Of Mortgage

Mortgage is a collateral contract that you will offer to the lending company as security to your loan. It has two common types. It may be either chattel mortgage or real estate mortgage.

Real estate mortgage is a contract of security where what is used as collateral is a real property or a piece of land. This type of mortgage requires registration or annotation of the mortgage at the back of the title of the real property. It is intended to warn the possible buyer of that property that it is subject to mortgage. Real estate mortgage is a separate and distinct contract from the original contract of loan. Loan is the principal while the mortgage contract is merely ancillary.

If you have used real estate mortgage as security to your loan and you failed to pay, the lending company can sell your real property in a public auction and recover the principal amount of loan plus the cost of the auction sale. If there is an excess amount, it will be given to you as the debtor-mortgagor. You can buy back your property within the period allowed by law or according to your agreement in case you will be able to pay the loaned amount.

On the other hand, chattel mortgage is a type of mortgage where the personal property serves as security for the loan. Like real estate mortgage, if the personal property needs registration such as cars or automobiles, the mortgage shall be annotated or registered as well. It is also an ancillary contract to the principal contract of loan. The personal property offered as security can also be sold for public auction in case the debtor failed to pay the loan. Once sold, one cannot recover it like those in real properties.

Some properties may be used as either real estate or chattel security in a mortgage. Example of such properties is a house. One can register it as a real property in a real estate mortgage or as a personal property in a chattel mortgage.

Mortgaged properties are not really transferred to the mortgagee. It is merely used as security. Transfer or title is applicable only when the debtor failed to pay and the property was sold in an auction. It is only during the auction sale where transfer of title over the said properties shall take effect. Ownership is therefore retained by the mortgagor until the sale of the property.

Although one can use properties as security to a loan, mortgage loan is granted only when there is a clear showing that the possible debtor really owns such properties because mortgage is an act of dominion and one can exercise it only if legally proven as the true owner of the property.

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