TEXT 21 MORTGAGE
Mortgageis a loan agreement that enables a person to borrow money to buy a house or other property. The property is used as security for the loan. The lender may take possession of the property if the loan is not repaid on time. Almost all mortgages involve real estate. A mortgage actually consists of two legal documents. One document, called a note, specifies the amount of the loan, the repayment terms, and other conditions of the agreement. The document is the mortgage itself, which gives the lender legal claim to the property if the loan is not repaid. The term mortgage commonly refers to the entire loan agreement. The lender is called the mortgagee, and the borrower is the mortgager. A person can obtain a mortgage from a bank, insurance company, mortgage company, savings and loan association, or other financial institutions. The interest rate and other terms vary from lender to lender. Most mortgage agreements require the mortgager to repay the loan in monthly installments over a period of 20 years or more. Part of each payment goes toward the unpaid balance of the loan, called the principal, and part toward the interest. The mortgager gradually increases the equity, which is the value of the property beyond the amount owed on it. If the borrower misses a number of payments or violates any other condition of the agreement, the lender may foreclose the mortgage. Foreclosure is a legal procedure by which the lender takes over the mortgaged property. The lender then may sell the property, keep the amount owed, and give the borrower the rest. More than one mortgage may be placed on a property. If foreclosure occurs, the holder of the second mortgage gets nothing until the claims of the first have been met. Two United States government agencies, the Federal Housing Administration (FHA) and the Department of Veterans Affairs, guarantee some home mortgage loans against loss to the lender. Loans unprotected by a government agency are called conventional loans. Mortgage loans have traditionally been a popular investment for financial institutions because of the great safety of such loans. During periods of rapidly rising prices, however, lenders may hesitate to tie up their money in mortgages. Interest rates soar during these periods of inflation, but most mortgages pay interest at a fixed rate throughout their term. Thus, a lending institution that issues a 25-year mortgage at 8 per cent interest may lose an opportunity to lend the money later at 12per cent. Inflation also drives down the purchasing power of money. As a result, the dollars that lenders get back have less buying power than the dollars they lent. Therefore, in periods of inflation, many lending institutions charge an additional fee called points for granting a mortgage loan. Each point equals 1per cent of the amount of the loan. The fee is regarded as prepaid interest and must be paid when the mortgage is signed. To counteract the effects of inflation, lending institutions have developed other typed of mortgages. In a graduated-payment mortgage, the borrower makes lower monthly payments for the first few years and higher payments later. In a variable-rate or adjustable rate mortgage, the interest rate rises and falls in relation to current interest rates. In a growing-equity mortgage, monthly payments increase between 3 and 7 per cent yearly until the balance is paid. In a balloon-payment mortgage, payments are lower for the first few years and then a large single payment repays the remaining balance.
I. Study the following words: Loan agreement, mortgage, security, legal, repayment terms, lender, legal claim, entire, installment, insurance company, interest rate, foreclosure, conventional loan, adjustable rate, equity, lending institutions. II. Give the synonyms of the following words: Borrow, property, agreement, claim, mortgagee, institution, value, violate, owner, amount.
III. Make up your own sentences with words given above in exercise 2: IV. What do you know about mortgage in your country? V. Retell the text ‘Mortgage’
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