This is podcast number two, and today our topic is mortgage loans. This is an important topic since mortgage loans are popular worldwide. For example, did you know that the global mortgage market is estimated to be more than six-and-a-half trillion US dollars? It’s quite possible that you, or that someone in your family, has a mortgage. Mortgages can be a solution for helping people buy their own home, but if the mortgage market is not well supervised, it can even cause a financial crisis. Mortgages are important on a micro level, and on a macro level. So let’s get started!

VOCABULARY

Listen to these words and expressions along with their definitions. You will hear them used later in context.

• Down payment: an initial payment made when something, for example, a house, is bought using credit.
• Mortgagor: the borrower in a mortgage, usually a homeowner.
• Mortgagee: the lender in a mortgage, usually a bank.
• Purchase outright: to buy in one payment without borrowing money.
• Pledge: to make a legal commitment to give a security on a loan.
• Delinquent loan: a situation where a borrower is late or overdue on a payment.
• Foreclosure: the action of taking possession of a mortgaged property when the borrower fails to keep up their mortgage payments.
• Repossession: the action of retaking possession of something, in particular when a buyer defaults on payments.
• Amortization: the action of paying off a debt with regular payments.

DIALOGUE

You have probably heard the word “mortgage” used before and you understand that a mortgage is a type of loan that people get from a bank, or another type of financial institution, which they use to buy residential property, like a house or apartment, or maybe a piece of commercial property, like a store or a warehouse.

Mortgage loans definitely fill a need. People and businesses usually take a mortgage loan because they don’t have enough savings to purchase the property outright.

Now, the length of most mortgages varies from ten to thirty years. Over this period, the loan is slowly repaid through a process called amortization, which usually consists of regular monthly payments.

There are two important characteristics of mortgage loans. The first is that the lender — known as the mortgagee –– usually requires that the borrower make a down payment; in other words, the buyer –– who is the mortgagor –– needs to pay part of the total price of the cost of the property. Typically, this amount represents ten percent or twenty percent of the total cost, but that amount can vary. Having buyers –– the mortgagor –– commit some of their own money helps prevent irresponsible purchases.

The other important characteristic of a mortgage loan is that borrowers pledge their right to the property as a guarantee for the loan.  In other words, the borrowers promise to surrender their right to the property if they can’t make payments so the lender can take legal possession of the property, remove the occupants, and sell it.

To put that another way, if the borrower doesn’t make all the payments as promised, the loan becomes delinquent, and the lender can foreclose on the property, repossess it, and then sell it to recuperate its money.

VOCABULARY SUMMARY

Alright friends, before we finish, listen to the vocabulary one more time:

• Down payment: an initial payment
• Mortgagor: the borrower
• Mortgagee: the lender in a mortgage
• Purchase outright: to buy in one payment
• Pledge: to offer the property as security.
• Delinquent loan: a situation where a borrower is overdue with payments
• Foreclosure: to taking legal possession of a mortgaged property when the borrower doesn’t make the payments.
• Repossession: to take back the property in order to sell it.
• Amortization: a period in which a debt is reduced or paid off by regular payments.

CONCLUSION

That is all for today. The “English for Economists” podcast is new, so this is a good time to share it with your friends and colleagues. If you enjoyed this English lesson, check out our lesson on Central Banks Raising Policy Rates, where you will learn more banking vocabulary. Also, if you have any suggestions or comments, write to me.

• Image credit CC “thuglife”