Simple English definitions for legal terms
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Definition: The mortgage market is where people go to get loans to buy a house. The primary mortgage market is where the loans are first given out, and the secondary mortgage market is where those loans are sold to other people.
The mortgage market refers to the conditions that create the demand for new mortgage loans and the resale of those loans in the secondary mortgage market. It is divided into two parts: the primary mortgage market and the secondary mortgage market.
The primary mortgage market is the national market where mortgages are originated. This is where borrowers go to obtain a mortgage loan from a lender, such as a bank or credit union. The lender will evaluate the borrower's creditworthiness and ability to repay the loan before approving the mortgage. Once approved, the lender will provide the funds to the borrower to purchase a home or refinance an existing mortgage.
The secondary mortgage market is the national market where existing mortgages are bought and sold, usually on a package basis. This market allows lenders to sell their existing mortgages to investors, freeing up capital to make new loans. Investors can then earn a return on their investment by collecting the interest payments from the borrowers.
For example, John wants to buy a house but doesn't have enough money to pay for it outright. He goes to a bank in the primary mortgage market and applies for a mortgage loan. The bank evaluates his creditworthiness and approves him for a loan. John uses the loan to purchase the house.
Later, the bank decides to sell John's mortgage to an investor in the secondary mortgage market. The investor pays the bank for the right to collect the interest payments from John. This allows the bank to free up capital to make new loans, while the investor earns a return on their investment.
This example illustrates how the mortgage market works to provide funding for home purchases and investments. It shows how the primary and secondary mortgage markets work together to create a fluid market for mortgage loans.