Most loans are unsecured. The amount borrowed against your available credit card balance is an unsecured loan. The private loan granted by a friend is an unsecured loan. The scholar loan you received for your university schooling is an unsecured loan. Any time that you borrow and there is no security pledged as collateral, that is an unsecured loan.
On the other hand, there are loans that ask for some kind of protection against default. When borrowing money to purchase real estate this protection is a worthy property - most of the time, your house - which you own. This is what we name a mortgage note. The idea is to include this property, the mortgage, to the agreement of the loan obligation. If you neglect to settle the loan obligation once it is scheduled and mandated by the conditions of the loan, the creditor can choose to reclaim the property to assure the said mortgage.
Why are mortgage loans required by some credit companies? Generally, a mortgage lessens the perils that these credit companies have to embark on when offering loans to the borrower. With the mortgage included to the loan, the creditor can most of the time apply the same for the execution and fulfillment of the loan if the borrower happens to be remiss in settling his loans.
Because the credit institutions will take on fewer perils, they can extend loans with lesser interest charges, which is typically the situation with mortgage loans. They higher the risk that lending institutions take, the more they have to charge in interest in order to cover any losses. The greater the credit risk, the higher the default rate will be.
Additionally, credit institutions can also extend loans comprising bigger amounts, because the mortgage will be there to secure the fulfillment of the same anyway.
It's conceivable for some borrowers to get a home loan without the insurance of a mortgage attached to it. All the same, these borrowers must have a very distinct credit score as well as a very large income. Mortgages for bad credit, are not included in this group and neither is a first time home buyers loan.
The most well-known method of mortgage loans is a residential mortgage loan, where the debtor borrows funds to finance the purchase of a house. The dwelling itself will serve as a mortgage to protect the said loan. If the debtor forgets to satisfy the loan after the delay of the allotted time, the creditor will use the mortgage and foreclose the home.
