Many homebuyers are not clear on the difference between the mortgagee and the mortgagee. It’s easy to get confused because some of the terms in mortgage agreements are used interchangeably. For example, the term mortgagor may also be referred to as grantor or consignor.
The distinction between the mortgagee and the mortgagee is that the first refers to the individual loan and the second refers to the entity or person that provides the financing.
Another way to remember the difference is to use word association tricks. For example, the words used to describe the borrower (mortgagor, grantor, consignor) include the letter ‘o’. The words used to identify the lender – mortgagee, dealer and trustee – include the letter ‘e’.
Mortgage notes are secured with a promissory note which is a written promise to repay the borrowed funds. Real estate notes are legal documents, so mortgagors should read the fine print before attaching their signature.
Promissory notes provide all parties involved with the details of the transaction. The document must include the principal of the loan, the interest rate, the dates and amounts of the payment installments, the amount of the prepayment penalty, the default clause, and the due date.
The principal of the loan refers to the cost of the house. Lenders charge interest on the principal amount. The interest rate is based on several factors, including the type of loan and the mortgagor’s FICO scores. Borrowers with excellent ratings get lower interest rates than those with good or average ratings.
Most lenders impose prepayment penalties if borrowers pay off their loan early. Mortgage borrowers should review the Truth in Lending (TIL) statement provided with loan agreements. In addition, people who apply for a loan are given a good faith estimate that includes the amount of the penalty.
There are good and bad points to getting mortgage loans that contain a prepayment clause. The advantage is that these types of loans have a low interest rate. The downside is that mortgagors could make a loss when they sell their home or pay off the loan too soon.
The biggest mistake buyers can make is not comparing store lenders. Shopping around for the best deal can help buyers get lower interest rates and reduced settlement costs. Cutting a quarter percent off interest rates can add up to thousands of savings over the life of the loan.
Few people would argue that buying a home is a daunting process. However, learning how the process works will improve trust and allow buyers to make informed decisions.
Various sources provide information on homeownership. Some of the most reliable include the Department of Housing and Urban Development, Fannie Mae Homepath, and Freddie Mac Homesteps. In addition, the FDIC offers a free home buying guide packed with valuable information.
For most of us, buying real estate is the most important purchase we will ever get involved with. For this reason, it is crucial to learn as much as possible to ensure a smooth home buying experience. Otherwise, uninformed decisions could result in foreclosure wreaking havoc on credit scores.