Taking out a mortgage is a major step in your life, creating a debt you'll be responsible for from the time you sign the mortgage papers until your last payment is made. Different mortgage types feature different interest rates and loan terms, but they all follow the same general life cycle. Knowing the life cycle of a mortgage helps you to be prepared for all steps of the mortgage process and prepares you for what's to come when you start paying off your mortgage.
The life cycle of a mortgage officially begins when you submit your loan application for approval. Though you will likely be shopping around for interest rate and loan term quotes before you submit your application, it isn't until you sign the mortgage application and give it to the loan officer for processing that the lender will begin to consider your mortgage loan in earnest.
Processing and Consideration
Once you submit your mortgage application, the bank or mortgage broker checks your credit and evaluates the risk of issuing your loan. They will verify the information on your application, check your credit, and appraise the house or other property you wish to buy. One or more underwriters or investors may be consulted if your mortgage is with a brokerage or smaller finance company so that the primary lender doesn't have to shoulder the entire cost of your loan.
Once the lender reviews your loan application and secures the funds for your mortgage, the closing process begins. Most loans have closing costs, which are additional out-of-pocket expenses such as those that cover inspection costs, application fees, attorney's fees, title insurance, and the cost of filing the mortgage with the county clerk's office. Once the loan closes, the debt becomes your legal responsibility and the property you've bought has a legal lien on it in the name of the bank or lender who issued the mortgage.
Depending on the lender that issued your mortgage, a number of things may happen once the loan has closed and the purchase is finalized. The most common post-close action is for the lender to sell off portions of the loan, or even the entire loan, to other lenders and investors to offset their expenses. Unless the lender sells the collection rights of the loan, these activities won't affect you, as you'll still have your single payment to make each month.
The repayment phase of a mortgage is by far the longest, lasting 15 to 30 years or longer, depending on the amount you have borrowed and the loan type. Unless you take out a loan with bimonthly payments, your responsibilities during the repayment phase are to make your monthly payment, maintain homeowner's insurance if required, pay taxes, and cover other costs specified in the loan agreement. Whether you make your exact payments each month or pay extra to repay your mortgage faster, once you repay the full amount, the lien is removed from your property and you'll own your home completely.
Born in West Virginia, Jack Gerard now lives in Kentucky. A writer and editor with more than 10 years of experience, he has written both articles and poetry for publication in magazines and online. A former nationally ranked sport fencer, Gerard also spent several years as a fencing coach and trainer.