What Is a Contractual Mortgage?

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A contractual mortgage is a security instrument against the piece of land that secures the lender's interest in that property. Learn about a contractual mortgage with help from a managing broker with Windermere Real Estate in this free video clip.

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Video Transcript

Hello, Jim Jacobsen, Windermere Real Estate, managing broker here in Seattle, Washington. We're talking about contractual mortgages or in my terminology we would say a mortgage on a property and basically what a mortgage is, is it's a security instrument against the piece of land or building that secures the lender's interest in that property. It's not a debt, it's a security interest and it would be used in the future in case of a foreclosure that the property would then be reverted back to your lender. So examples of mortgages in our state and most of the states in the United States are that typically we have a 30 year mortgage, it can be a 50 and it could be a 10 year mortgage but what takes place is is that the buyer of the property has a mortgage with the lender and they'll make payments of principle interest on that mortgage or loan for 30 years, based on what we call the principle of diminishing balances. So there's a principle and interest payment and normally you are paying slightly more than the interest on the loan and that slightly more part is principle and it's reduced monthly against the mortgage. So as time goes on, your interest payment goes down but your principle payment goes up because you have a smaller mortgage amount each month that you pay your loan.

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