A mortgage is a real estate loan between a borrower (mortgagor) and a lender (mortgagee). A Mortgage Agreement is a legally binding contract that outlines the mortgage terms, such as the interest rate and payment schedule. This document helps protect the lender’s interest by securing the property as collateral if the borrower defaults on payments. 

A Mortgage Agreement places a lien on the property. A lien allows the lender to claim the legal right to the property if the borrower violates the payment schedule. If the borrower fails to make payments, the lender can decide to sell the property. The lender can recoup the loan's outstanding balance before the borrower can access the remaining proceeds. 

It’s vital that borrowers and lenders understand the implications of a Mortgage Agreement before consenting to its terms and conditions. Here’s a brief breakdown of how a Mortgage Agreement works:

1. Negotiate terms

The borrower and lender must agree on key terms, including the principal amount, interest rate, and repayment schedule.

2. Draft the Mortgage Agreement

The borrower and lender create and sign a Mortgage Agreement that details all the agreed-upon terms, including the repayment plan and whether the entire prepayment of the balance owed is allowed. One of the easiest ways to draft a Mortgage Agreement is with LawDepot’s customizable template.

3. Use property as collateral

The borrower grants the lender a security interest in the property with a lien. If the borrower fails to meet payment obligations, the lender may initiate foreclosure proceedings. Through foreclosure, the lender can force the sale of the property to recover the outstanding loan balance. The lender can recoup the outstanding balance before the borrower can access the remaining sale funds.

4. Provide the loan

Once both parties sign the Mortgage Agreement, the lender provides the loan funds, which the borrower uses to purchase or refinance a property.

5. Borrower makes payments

The borrower follows the repayment schedule outlined in the Mortgage Agreement, typically making monthly payments that include principal and interest.

6. Provide a Satisfaction of Mortgage

Once the borrower pays the loan in full, the lender provides a Satisfaction of Mortgage document. This document removes the lender’s claim on the property and officially clears the borrower’s financial obligation. Once the Satisfaction of Mortgage is complete, the borrower owns the property free and clear from the mortgage lien. 

LawDepot offers a convenient questionnaire that allows you to tailor a Mortgage Agreement to your unique circumstances. We collect the following information to create a detailed contract that outlines your agreed-upon terms:

Property details

Specify the type of property that the borrower is buying and where it is located. LawDepot customizes the Mortgage Agreement to the property's state.

Party details

Include details for both the lender and borrower, including names and addresses. You may also enter whether a guarantor is required. If so, provide the guarantor’s name and address as well. 

A lender may request a guarantor as additional security for the loan. If the borrower fails to make payments, the lender can collect the funds from the guarantor.

Mortgage terms

Provide the mortgage amount (the principal), interest, and interest adjustment date. The interest adjustment date is when the term begins and interest starts accruing.

Payment details

Identify how frequently the payments to the lender will be made. For example, payments may be weekly, biweekly, or monthly. Also, specify what day the installment payments are due and how much each payment will be. 

Then, add the last day of the mortgage term, which is also known as the maturity date. Identify whether annual prepayment will be permitted, the amount the borrower can pay, and whether there’s a penalty for prepayment. 

Annual prepayment allows the borrower to pay a lump sum toward the loan's principal, lowering the total interest the loan will incur.

Clauses

Include additional clauses, such as the power of sale clause, which allows the lender to sell the property without court interference if the borrower fails to make the payments. This clause simplifies the sale process for the lender.  

Though many states recognize Mortgage Agreements, some require Deeds of Trust instead.

Deeds of Trust are similar to Mortgage Agreements, but the property’s legal title transfers to a neutral third party known as the trustee. With a mortgage, the borrower retains the legal title, and the lender has a lien on the property until the debt is cleared.

It’s essential to learn what documentation your state requires to transfer property. Some states require a Deed of Trust or a Mortgage Agreement while others permit both.  

The requirements per state are as follows:

If your state only recognizes a Deed of Trust, you can build that document with LawDepot’s convenient Deed of Trust template.

Most mortgages in the United States range from 15 to 30 years. In our document, you will specify the maturity date, which is when the final payment for the balance on the mortgage is due. 

You may also use LawDepot’s Amortization Schedule to create a clear payment schedule based on the agreed interest rate and payment terms.