Debt instrument giving conditional ownership of an asset, secured by the asset being financed. The borrower gives the lender a mortgage in exchange for the right to use the property while the mortgage is in effect, and agrees to make regular payments of principal and interest. The mortgage lien is the lender's security interest and is recorded in title documents in public land records. The lien is removed when the debt is paid in full. A mortgage normally involves real estate and is a long-term debt, normally 25 to 30 years, but can be written for much shorter periods.
Originally written exclusively as fixed-rate fully amortizing loans, mortgages have evolved into more flexible contracts. Since the mid-1970s, the financial industry's funding sources have become more volatile and market sensitive, and legislation and regulation have relaxed the prohibitions on alternative types of mortgage financing, such as variable rate and adjustable rate mortgages. Recent innovations in packaging of mortgage loans for resale in the Secondary Mortgage Market to investors have helped to create a national market for mortgage lending and a wide variety of synthetic financial instruments, such as theCollateralized Mortgage Obligation a multiclass security consisting of several different mortgage backed bonds that have payment characteristics quite different from the mortgages securing the bonds.
See also Adjustable Rate Mortgage; Alternative Mortgage Instrument; Balloon Mortgage; Biweekly Mortgage; Chattel Mortgage; Conventional Mortgage; Derivative Mortgage-Backed Securities; Graduated Payment Mortgage; Growing Equity Mortgage; Interest-Only (IO) Securities; Inverse Floater; Mortgage-Backed Bond; Mortgage-Backed Certificate; Mortgage-Backed Securities; Negative Amortization; Portable Mortgage; Price Level Adjusted Mortgage; Principal-Only (Po) Strip; Reverse Mortgage; Rollover Mortgage; Shared Appreciation Mortgage; Zero Coupon Mortgage.
