A mortgage is a device for a lien between a lender and a borrower. Through a mortgage, the borrower pledges the property to the lending agency as a security. This way the loan is secure and the lender can foreclose the property and recover his loan if the borrower fails to make mortgage repayments. A mortgage lien comprises the actual mortgage and a note that registers this lien. This process is also called hypothecation.
Mortgage loans in California, as in other parts of the country, are essentially of two kinds: fixed-rate loans or adjustable rate loans. A fixed rate loan is called an Amortized rate Mortgage (ARM) where the interest rate on the mortgage is agreed to and fixed for the entire period of the mortgage. In an ARM, the lender assumes the risk of interest rate fluctuation. This means that if the market rates go down the lender benefits from it but if they go up, the lender has to continue to charge only the fixed rate.
Adjustable rate mortgages have variable interest rates that can vary monthly or annually. In these loans the interest rate risk is transferred to the borrower. Therefore, loan rates of adjustable loans are also marginally lower than existing market rates. Many California homeowners also capitalize on the equity of their home by applying for a second mortgage on their homes.
Typically, most homebuyers apply for a pre-approval to loans. Through this process, the lending agency judges the loan repayment capacity of the borrower by their credit ratings, equity, income, etc. Once the loan is pre-approved, the borrower can easily enter into a mortgage lien with the lender once he actually locates a house.
Last but not least, a home mortgage loan with no down payment on the house is a popular option that many homebuyers opt for. This allows them to own a home and yet not invest all their savings into buying it.
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