Dave Johnson of Cane Bay On The Complete Guide to Real Estate Backed Mortgages

Real estate backed mortgages are agreements in which financial institutions agree to provide borrowers with money that the borrowers must repay. Apart from signing papers promising to repay the mortgages, the borrowers are also required to pledge some of their properties or buildings as collateral. The financial institutions will acquire the properties pledged as collateral in case the borrowers fail to repay their loans as promised.

“The amount of money offered by financial institutions for real estate backed mortgages varies depending on the value of the property”, according to David Johnson of Cane Bay Partners. The amount offered is usually a percentage of the value of the property offered as collateral. Most lenders order an appraisal and an inspection report detailing the total worth of borrowers’ real estate. Other factors considered by financial institutions when determining whether to offer real estate backed mortgages include borrower’s ability to repay, credit history and credit scores.

Residential Mortgage
This mortgage uses the borrower’s primary residence as collateral. Mortgages are usually offered in lump sum after which borrowers are expected to repay their loans plus interest in equal monthly installments for a given period. Mortgage repayment periods often range from 15 to 30 years. Most people use mortgages to purchase new homes.

Some financial institutions may require borrowers to make escrow payments in addition to their mortgages. The financial institutions use the escrow payment to pay for homeowners insurance and property taxes on the property offered as collateral during the life of the loan.

Commercial Mortgages
Commercial mortgages do not use borrowers’ personal homes as collateral. Individual borrowers may use rental properties or buildings they use for business purposes as collateral. Companies may use their real estate properties as collateral when applying for real estate backed mortgages. The terms of this type of mortgage are similar to those of residential mortgages, but there is no escrow with most commercial mortgages.

Home Equity Installment Loans
Like residential real estate backed mortgages, home equity mortgages also use borrowers’ homes as collateral. The main difference between the two is that home equity installment loans are not usable for purchasing real estate. Home equity installment loans are usually used for paying for college tuition, home improvements and as consolidating loans. Borrowers make equal monthly installments over a given period but without escrow. Home equity terms range from 10 to 20 years.

Home Equity Lines of Credit
Like home equity installment loans, home equity lines of credit use borrowers’ homes as collateral but are not usable for purchasing new homes. However, borrowers do not receive lump sums with home equity lines of credit; instead, financial institutions offer money that borrowers can access as needed.


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