A mortgage is a loan for buying property, subject to regular repayments. Mortgage laws are established by governments to protect consumers and regulate the mortgage agreement process, involving contract, financial, secured transactions, and real estate laws. Mortgage laws set rules on interest rates, penalties, foreclosure, and second mortgages, but still allow room for individual negotiations.
A mortgage is a loan instrument, created according to the national legislation of many countries, which provides for the conditional financing of real estate. A party who wants to buy a property that costs more than they can afford often looks for a mortgage loan to make the purchase. The borrower, usually a bank or other large financial institution, lends the purchaser, or mortgage lender, the money needed for the purchase subject to regular repayments. If those payments aren’t made, the borrower can usually foreclose on the property. A mortgage law is a law that establishes appropriate terms for mortgage agreements, establishes parameters on foreclosure practices, or in any other way shapes the mortgage agreement process.
National or local governments establish mortgage laws. While laws vary from jurisdiction to jurisdiction, the overall goal is consumer protection. Mortgages almost always present situations in which there is an unequal bargaining power between the parties. One party, the borrower, usually has a lot of power and can draft the terms and conditions of the loan. A mortgage law is usually designed to protect the mortgage lender from unfair terms or discriminatory enforcement.
Many different types of law can be involved in mortgage law. The first is contract law. Mortgages are, at their most basic level, contracts between two parties: the parties agree on an exchange, repayment terms and time period, among other things. Financial law is also involved, including banking law and any applicable loan laws. The Secured Transactions Act, which controls the terms and conditions of monetary exchanges with the property as collateral, is also usually a part of mortgage law, as are real estate laws and real estate laws. Commercial mortgage law can also involve commercial and constitutional laws, as well as any law governing commercial transactions.
A mortgage law may dictate what type of interest rates are appropriate for a mortgage, or it may set an upper limit on penalties that can be assessed for late or incomplete payments. Similarly, a mortgage law may set rules on the speed of foreclosure. In many places, mortgage laws require at least a short grace period before a borrower can foreclose on a delinquent mortgage lender. Mortgage laws are also responsible for authorizing or disallowing second mortgages and defining the range of acceptable terms for such mortgages, if permitted.
No mortgage law dictates exactly what a mortgage should look like. Rather, laws serve as a tool for identifying the range of appropriate terms and conditions: they stipulate what is permitted and what is not permitted, but still leave room for individual negotiations to take a shape of their own. In this way, the mortgage market remains competitive, but a certain degree of fairness and regulation is ensured.
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