Mortgage, loan and property. What is a mortgage?

A mortgage is putting a property as a guarantee to a lender as a security for a mortgage loan.

While a mortgage in itself is not a liability or a dept, it is evidence of a debt. It is a transfer of an interest in property, from the owner to the mortgage lender, on the condition that this interest will be returned to the owner of the property when the terms of the mortgage have been satisfied or concluded.

In other words, the mortgage is a guarantee for the loan that the lender makes to the borrower. In all but a very few states, a mortgage creates a lien on the title to the mortgaged property.

Monday, April 21, 2008

If your HELOC hasn't been frozen, it might be time to panic!

Be familiar with your risk. Areas where home prices have fallen by 10% or more are major targets for freezes, says Susan McHan, president of Opes Advisors, a mortgage banking firm in Palo Alto, Calif. Because of new lending norms, your home-equity line of credit (HELOC) might also be in risk if you bought your home in the past few years with little money down. Be careful.

Last year consumers could without difficulty borrow up to 100% of a home's value through a combination of a HELOC and a first mortgage. Today you'd be lucky to obtain up to 90%; 60% is the max in areas hit hardest by home-price declines.

Lenders are starting to apply the same norms to existing HELOC clients. Call your bank and ask what the loan-to-value cap is on new HELOCs. If your home debt is above that, your line could be at risk. A change in credit score or a missed payment could also put your account at risk. Reread your contract to see if such factors permit the lender to cut you off.

Access your cash now. If your line of credit is in danger and you need the HELOC to finish a renovation, you could draw a lump sum. The drawback: you'll cut your equity; you'll owe interest now; and if home prices keep falling, your loan values could top your home's value. Therefore borrow only as much as you need and place the cash in a high-yielding savings account or CD until the renovation bills come due.

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