Mortgage in Real Estate

Owning a private home has become a fundamental demand in today's era, and most people looking to buy homes are turning to mortgage loans to facilitate the financing process and complete the sales and purchase transactions. There are also others looking for different types of properties, such as land, buildings, farms, etc. Regardless of the type of property, one crucial requirement when applying for a mortgage loan is ensuring the loan repayment, and this is where mortgage collateral comes in as the best solution for both parties. In this agreement, the property serves as collateral between the borrower and the lender, which can even include a corporation. Let’s explore the basics of mortgages in this article.

What is a Mortgage?

A mortgage can take many forms depending on the parties involved, but the end goal is always the same: ensuring the lender’s rights while granting the borrower access to the desired funds secured by the property.

In simple terms: A mortgage is an agreement between the borrower and the lender where a property is pledged as collateral in favor of the lender.

• Mortgage in Banking Sector: A financial service provided by banks to their clients in exchange for collateralizing a property.
• Mortgage on an Existing Property Owned by the Borrower: This involves the borrower pledging their property as collateral to receive a cash loan or liquidity, with the obligation to repay within the agreed terms.

Mortgage Sectors

Individual Sector

• Residential Mortgage: The client applies to the bank for a housing loan to finance the purchase of a residential property, with the property itself serving as collateral for the bank.
• Financial Mortgage: The borrower applies to the bank for liquidity by pledging their owned property as collateral.

Corporate Sector

• Financial Mortgage for Companies: A company applies to the bank for financial liquidity to continue its operations by offering a property it owns as collateral. The bank may grant the company credit facilities such as overdraft, letters of credit, or insurance policies.

Mortgage-related matters play a crucial role in driving the economy forward, especially when clients meet their repayment obligations without facing financial difficulties.

Parties Involved in a Mortgage

• The Mortgagor (Borrower): The party who provides the mortgage, which could be the debtor or a collateral guarantor.
• The Mortgagee (Lender): The party to whom the property is pledged for their benefit until the borrower fulfills their repayment.
• The Mortgaged Property: The property that serves as collateral and is legally eligible for such transactions.

General Conditions for Mortgages

• Property Ownership: The current owner must have full ownership rights to the property.
• Mortgage Agreement: A signed mortgage contract that details all aspects of the property and transaction.
• Registration of the Mortgage: The mortgage must be registered with the land department.
• Mortgage Value: The value of the property should be sufficient to cover the loan or debt amount.
• Repayment Agreement: The repayment schedule is agreed upon between the borrower and lender and differs between individuals and companies.
• Lender’s Right to Sell the Property in Case of Default: The lender has the right to sell the mortgaged property if the borrower fails to repay as agreed.

Types of Mortgages

There are two main types of mortgages:

• Secured Mortgage: This is the most commonly used mortgage type and specifically applies to real estate.
• Possessory Mortgage: This type applies to both real estate and movable assets.

Key Differences:

1. Mortgage Subject: Secured mortgages apply only to real estate, while possessory mortgages apply to both real estate and movable property.
2. Contract Formation: A secured mortgage is a real contract that is only valid once registered in the land department, whereas a possessory mortgage is only valid once the property is physically delivered, whether real estate or movable property.
3. Effects of the Mortgage Contract: A secured mortgage is a unilateral contract (binding only on the borrower), while a possessory mortgage is a bilateral contract (binding on both parties, borrower and lender).

What is a Mortgage Deed in the Land Department?

A mortgage deed is a debt instrument secured by real estate, attached to a transfer transaction at the Land Department. It includes check numbers, amounts, and dates. When each check is paid, it is automatically canceled from the deed. Once the full amount is repaid, the mortgage is lifted, and the registration deed is transferred back to the borrower (property owner).

Mortgage-Related Notes in Jordan

• Jordan Mortgage Refinance Corporation: This pioneering company, coordinated by the Central Bank, helps resolve issues between banks and clients by providing financial support to banks when liquidity is insufficient to fund a client’s mortgage, in exchange for the bank’s mortgage deed until the loan is fully repaid.
• When mortgaging an existing property for financing, the maximum financing percentage offered is 70% of the property’s value.
• In case of early repayment, the client must comply with all conditions related to interest rates and due dates.

Frequently Asked Questions About Mortgages

• What are the mortgage fees?

  The interest is a decreasing rate, ranging from 9.5% to 11% annually, depending on the borrower’s creditworthiness.

• Who bears the mortgage fees?

  The borrower is responsible for mortgage fees, including property appraisal fees.

• What is the allowable debt-to-income ratio?

  The debt should not exceed 50% of the net salary or total income.

• Is mortgage financing only available through banks?

  No, agreements can also be made directly between the borrower and housing companies, where ownership transfer is followed by mortgaging the property to the housing company for the remaining amount. Other financial institutions and capital markets may also be involved.

• What are the mortgage fees?

  The interest is a decreasing rate, ranging from 9.5% to 11% annually.

Homes Jordan's Expertise

The Homes Jordan team, specializing in engineering and legal consultancy, will guide you step by step to clarify all the details related to mortgages and mortgage loans for purchasing your desired property. Don’t hesitate to contact the team to help you safely navigate through the process and complete all necessary procedures.

All rights to this article are reserved for Homes Jordan, 2024.

This article has been written with reference to various sources.