Question: I am a first time buyer and have recently been approved for a mortgage. What exactly is a mortgage?
Answer: A mortgage is a loan agreement under which certain property is given as security for the loan. Historically the mortgagor (i.e. the person who is borrowing the money) actually transferred his title in the land to be secured to the mortgagee (i.e. the bank) on condition that as soon as the loan was repaid the title would be re-transferred back to the mortgagor. However where the property is registered in the Property Registration Authority the mortgage is created by a simpler form of document typically known as a charge.
The letter of loan offer which you will receive contains the basic terms and conditions of the mortgage loan. The most important of these are obviously the rate of interest and the term of the loan. However it is standard practice that the bank would also require you to take out life policy and would also want to know that the property is insured. In the excitement of buying your first house it is important to remember that the bank is really only concerned about how they are going to be repaid and therefore they are most concerned with three things – your capacity to repay, what happens if the house burns down, and finally what happens if you die.
Before the loan cheque actually issues your solicitor will arrange for you to sign the Deed of Mortgage. This used to be a very long document but nowadays is quite short but refers to a set of mortgage conditions. These conditions, as you would expect, are very much in favour of the bank and include obvious ones like the covenant to repay the loan and to keep the house insured. There will also be a general prohibition against leasing or otherwise disposing of the property without the consent of the bank and effectively you are obliged not to do anything which would affect the bank’s security.
The mortgage also sets out what happens if you do not pay the loan and in short the bank is entitled to repossess the property and to sell it to repay the loan. Hopefully this is a part of the mortgage that you will never have to read.
The information contained in this article is for general information purposes only and does not constitute legal or other professional advice. Specific legal advice should be sought on any particular matter.
