Mortgages Flashcards
Mortgages
A legal agreement by which a bank, building society, etc. lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of title becomes void upon the payment of the debt.
Mortgagee
Mortgagee is the lender (e.g. the bank). (Also known as the creditor or debtor). The mortgagee has a strict duty to account.
Mortgagor
Mortgagor is the borrower (e.g. the person who takes out the mortgage). (Also known as the debtee).
When the mortgage has to be paid ?
Historically, under the common law, the mortgage and interest had to be paid by the date of redemption, which was an absolute date. (If not, the mortgagee could keep the property!)
Under equity, the date of redemption is the earliest date on which the mortgage can be redeemed.
- The mortgagor can redeem at any point thereafter within the life of the mortgage.
- This is also the date after which the majority of the mortgagee’s powers are exercisable (e.g. powers to enforce the loan).
Alternatives forms of securities like mortgages
- The Liens:
- Property is subject to a lien until the money owed is paid. These arise under common law, equity or statute. - Pledges (pawn):
- Lender takes possession of chattel until the money is repaid but ownership remains with the borrower.
- A date is set for repayment. Lender has the right to sell, once the date passes and money is not repaid. - Charges:
- Conceptual different to a mortgage:
N.B: a mortgage is a conveyance of property subject to a right of redemption - a charge conveys no interest in the property, but gives the chargeant (lender) certain rights over the property as security for the monies advanced. (Maddox).
- Mortgages over registered land have always operated by way of a charge.
- Since LCLRA 2009, all mortgages created over registered land or unregistered land operate as a charge.
Types of mortgages
- Repayment (or annuity -rente in French-) mortgage
- Interest only mortgages
Repayment (or annuity) mortgage
The mortgagor repays an amount each month, which comprises of interest and a portion of capital of the original loan. SO INTEREST + PORTION OF CAPITAL = REPAYMENT/ANNUITY MORTGAGE
In the early years of the mortgage, most of the monthly repayment is made up of interest, with a smaller portion of it comprising of capital. As the years progress most of the repayment is made up of capital repayment.
Can be indexed on the balance of the capital sum minus the amount in the current / savings account.
Interest only mortgages
Endowment mortgages:
- The capital due to repay the monies is due at the end of the mortgage period. The capital is borrowed for the entire mortgage term and the monthly repayments are comprised of interest owed.
- The borrower makes additional repayments into an investment fund (known as an endowment policy), which will be used to pay off the capital sum at the end of the mortgage period.
Pension mortgages:
- Here, each month, the mortgagor pays interest on the capital sum, while also paying into a personal pension policy. The capital sum is repaid at the end of the mortgage period by cashing in the personal pension policy.
- The idea is that the pension policy will grow enough to pay off the capital and provide a pension income.
Type of interest - Fixed rate
This is where the interest rate is fixed for the period of the mortgage.
- Advantage: interest rates rise during the lifetime of the mortgage, the fixed rate of interest will apply.
- Disadvantage: If interest rates fall during the period, the mortgagor will pay more; the financial institution will charge an early redemption penalty in the event of sale or remortgage.
Type of interest - Variable rate
A mortgage with a standard variable rate will be linked to the general changes in the rate of interest as set by the European Central Bank. E.g. ‘Tracker variable rates’ is where the interest is set at a fixed percentage above the ECB interest rate.
- Advantage: No early redemption penalty.
- Disadvantage: Lenders can grant different variable rates to different persons. They can ‘load’ the interest rate, for investment properties.
Type of interest - Split rate
Hybrid interest rate where part of the mortgage term is charged at a fixed rate and the other part is charged at a variable rate.
Creation of mortgages
Post- LCLRA 2009:
- Legal mortgages: Legal mortgages are created over registered an unregistered land in the same way - by the creation of a charge over land.
- Equitable mortgages: Creation of equitable mortgages is not affected by the LCLRA.
Pre-LCLRA 2009:
- Legal mortgages over registered land: Legal mortgages over registered land were created by creating a charge over land.
- Legal mortgages over unregistered land: Legal mortgages over unregistered land were created in specific ways.
- Equitable mortgages: Equitable mortgages could be created in specific ways.
Creation of mortgages - Situation Post-LCLRA 2009
s89 (1) of the LCLRA reads:
‘A legal mortgage of land may only be created by a charge by deed and such a charge, unless the context requires otherwise, is referred to in this Part as a “mortgage”; and “mortgagor” and “mortgagee” shall be read accordingly’.
Definition of “deed”: a legal document that is signed and delivered, especially one regarding the ownership of property or legal rights.
Applies to both registered and unregistered land.
The mortgagee does not acquire an estate in the property.
Rights of the mortgagor
- Right of redemption:
- The primary right of the mortgagor is to redeem the property upon performance of the secured obligation.
- Courts are reluctant to issue decision that will interfere with the equity of redemption (EOR)
- Exception: commercial mortgages! - Right of postponing:
- Cause or arrange for (something) to take place at a time later than that first scheduled.
Rights of the mortgagee
- Power to take possession
s97 LCLRA applications in respect of non-abandoned property. s98 for abandoned property. - Power of sale (28 days notice of the possibility of sale must be given to the mortgagor).
s100 LCLRA
a. Notice served on mortgagor in respect of default on the mortgage, and default continues for 3 months after notice is served, or
b. Interest or capital is unpaid for 2 months or,
c. Breach by the mortgagor of some other condition attached to the mortgage (i.e. not to do with the capital or interest) - Power to Appoint a Receiver
s108(1) LCLRA
(i) Notice requiring payment of the mortgage money has been served on the mortgagor and default has been made in payment of the mortgage money, for three months after the granting of notice or
(ii) Interest is in arrears and unpaid for two months or
(iii) There has been a breach of some other condition contained in the mortgage deed or in this Act, (i.e. other than the mortgage or interest).
