A Primer on Loans and Mortgage Loans

:: A Primer on Loans

A monetary loan (which is what we will be referring to by “loan” in this article) is money given up front to a borrower, who agrees to pay back the original loan amount (the principal), as well as a recurring installment fee for obtaining the loan (interest). Loans is a form of debt for the borrower, with the financial institution that made the loan acting as the creditor or lender.

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Bank Loans

Bank loans are not funded by customer’s money in the bank but instead by the borrower's future promise to repay the loan. When the borrower signs the loan papers during the loan application, the bank actually uses the promissory note for the asset to fund the loan. The loan is all credit created by the bank or lending institution. In making a mortgage loan, a bank hopes that it will eventually make back its principal and will profit in the amount of the interest rate multiplied by the outstanding debt minus the inflation loss of the original money lent.

Mortgage Loans

One of the most common types of loans is a mortgage loan. Mortgage home loans are one type of debt that people use to purchase their homes. In this scenario, the bank gives the borrower the money to purchase the home from the previous owner. However, the title to the home is kept by the bank until the mortgage is paid off. If the borrower should default on the loan, the bank foreclosures on the property and recoups their money by selling off the home. Some of the most common types of loans include Fixed-Rate Mortgages, Temporary Buy-downs Mortgages, Balloon Mortgage Loans, Adjustable Rate Mortgages and Bad Credit Loans.