This is the third in a series of articles about the anatomy of a mortgage contract.

Be aware that mortgage contract facts covered are generically-derived – your mortgage will be specific to your mortgage and your lender.

We've covered mortgage facts in part one, process and applications in part two, so now let’s take an overview of the mortgage contract. Space does not permit detailing the entire process; however, we highlight various terms and conditions, the full details for your personal mortgage is up to you.

Know before you owe

You, singular or plural, are the mortgagor(s). Your lender is the mortgagee.

Your mortgage is a legal contract. It will be with you for a very long time, so you need to know exactly what you are getting. You have a serious right to do your own independent research and ask questions until you have understandable answers.

Go over the contract. Check your legal names and numbers. Get help from a maths friend for the amortisation payment process and an attorney for legal advice on the contract itself. You need to protect the documentation that you're going to get, including tracking every single payment that you make.

You can verify those numbers yourself by using an internet amortisation schedule, for example, bankrate.com.

See also page 7 of step 8 of “Your Personal Loan Review” on The Royal Gazette’s Bermuda Islander. (https://www.royalgazette.com/bermuda-islander/article/20201214/bermuda-islander-step-8/)

Property legal description

You, the Mortgagor(s) are registered owners of the property based on survey map descriptions, land, buildings described and attachments that are covered by this mortgage. Now is the time to be sure that the prior ownership title to the property is clearly defined. Any subsequent changes to property, e.g. additions, alterations, inclusions may need mortgagee (the bank) consent and be subject to same terms and conditions of your contract.

By the bank lending a sum to you, the mortgagor acknowledges this debt, so the parties to this mortgage agree to the following terms:

Governing law: your mortgage, including rights and obligations contained within, and subject to any requirements and limitations, are governed by Bermuda law.

Promise to pay: the Mortgagee for value received (loan) Is obligated to pay, on demand, the principal amount, interest, all fees and costs by the terms set out below without abatements, set-offs, or counterclaims.

Readers, note that “on demand” is a very important component of the contract. More on this in part four.

Interest rate: at this date of x per cent calculated per annum (yearly, or other) and compounded annually, monthly, or daily starting with date of mortgage until all principal is paid, on or before the maturity date of said loan, for example five, ten, 15, or 20 years. Adjustable-rate mortgage interest rate calculations may be different.

Payment applications: all monthly payments applied to interest first, then principal. A mortgagor in default will see different terms.

Prepayment of principal privileges: as long as the mortgagor is not in default, you may prepay a certain amount of the principal (determined by your lender) at any time in a year, or say every three months, or six months, etc. You may be required to give 90 days notice. These terms will also vary from lender to lender.

Full repayment of outstanding principal balance: after notification by you to your lender may be paid at any time, or a time stipulated by your mortgage contract.

Discharge of the mortgage: once full repayment of principal is completed, occurs when lender is notified in writing. This process is handled in Bermuda by reconveyance of your property deed from lender’s possession back to you. Be aware that there are discharge costs in stamp duty of 1/20 of 1 per cent of the amount borrowed and an attorney legal fee to complete the reconveyance.

You, as an individual, homeowner and mortgagor, have covenants and warrants. You are agreeing the following:

• Good title to the property. Bermuda does not utilise title insurance as in other countries. Instead, the requirement is that said property is insured for full replacement value with the lending bank as loss payee.

• You have the authority to mortgage the property

• The property is free of all encumbrances, e.g. mechanics lien, etc

• You haven’t done anything else that may encumber the property (for example, a lawsuit)

• The lender may require further assurances about the property.

Leasehold property covenants: not addressed here, but there are significantly more warranties.

Payment of taxes and other encumbrances: you have a duty to pay all taxes, utilities, and other property charges, insurance, etc when due – the lender has a right to request paid receipts.

No sale without consent: you cannot sell, transfer, lease, or dispose of an interest in, or the full property without the mortgagee’s prior written approval. Further, the nature of the full transaction must be in a format satisfactory to the lender, while acceptance say of a down payment to you does not constitute a mortgagee approval.

Property insurance: you will insure the property for protection against damage by fire and other perils, including extended peril coverage – and any other coverage that your lender requests – to cover replacements costs of all buildings on the property. You may choose the insurance company subject to the lender’s approval. Any loss is payable in the insurance policies is designated to the mortgagee (lender).

The mortgagor (you) will also provide a copy of the insurance policy, receipts for all paid premiums and renewal notices with evidence of completed renewal to your lender.

Catastrophe loss payment sequence: proof of claims must be submitted to the lender. Insurance proceeds will be applied to repair or restore the property, if economically feasible.

Stay tuned for part four on November 12, 2022. Further information regarding the remainder of the warranties, defaults and remedies and other terms will be discussed.

Disclosure: Martha Harris Myron has no professional connection to any local mortgage lender; further, specific terms and conditions will vary from lender to lender; professional guidance is recommended. I do, however, welcome any input from local lenders for clarity and am happy to provide attribution.

• Martha Harris Myron is a native Bermuda islander with US connections and author of Bermuda’s First Financial Literacy Primer – The Dawn of New Beginnings, and the Bermy-Bermuda Island Finance Blog, www.marthamyron.com. All her media proceeds donated to the Bermuda Sloop Foundation. Contact: martha.myron@gmail.com