The bank is a financial institution, which plays the role of a financial mediator between Depositor and withdrawer. Other than accepting deposit and lending loan, it also provides many other services to the public and the business.
In the globalized economy, there are many different institutions emerged which started providing different services. In this business world, many banks have divided themselves according to the service they provide and got themselves registered.
Mortgage and Merchant bank are one of those institutions, which provides the financial services and consultancy, Underwriting, Funding and loan to business and real estate purchase.
Mortgage vs Merchant Bank
The main difference between Mortgage and Merchant Bank is that Mortgage is a bank or company which offers a loan with their own funds or from warehouse lenders. A merchant bank is an institution which provides the services of finance, underwriting, offering business loan and advice or consultancy on finance.
A mortgage is a bank, company, individual or institution which is specialized in Mortgaging loan. Mortgage bank never holds any deposit, it originates and services the loan. It provides its fund to the customers or from warehouse lenders.
A merchant bank is a financial institution that offers the Financial services or Advisory, underwriting and business loans. It is expert in international finance, underwriting and managing the currency on the time of fund transfer. Mainly provides the financial advice and consultancy to the business holder, individuals worldwide with consultancy fees.
Comparison Table Between Mortgage and Merchant Bank (in Tabular Form)
| Parameter of Comparison | Mortgage | Merchant Bank |
|---|---|---|
| Functionality | It is originating and mortgaging loans, mainly mortgaging own funds | Financial consulting for business which may include business loans and advice. |
| Services to | Individual or Businesses use Mortgage mainly on real estate purchase | Financial Advice to multinational companies and Business and other services also |
| Earning | Mortgage sells its mortgage at a premium on the secondary market | Merchant bank provides service of Consultancy on business and finance |
| Governing Act | As per NMLS and SAFE Act | Follows the SEBI guidelines |
| Risk | Mortgage bankers face less risk | Compare to Mortgage More |
What is Mortgage?
The mortgage is a bank, company, individual or an institution who offer loans to individual or businesses who wants to use the funds to make large real estate purchase. Mortgage loans its funds or from warehouse lenders.
Mortgage never collects deposit from the public and holds, it originates and services loans by its own. The primary source of revenue for the mortgage bank is ‘mortgage originating fees or servicing fees’.
Mortgages are also known as a lien against property or Claims on property. As individual or businesses mortgage for the purchase of the real estate, he or she has to repay the mortgage amount with interest.
In case the mortgage borrower unable or repay amount or interest in a certain period assigned. The mortgage bank has the right to occupy the house and sell. By using the selling income amount they can clear and settle the mortgage. In other words, Mortgage is nothing but Loan borrowed from bank or company or individual by assuring the repayment or loan against security.
In other words, a mortgage can also be called as a home loan. It has many forms; mortgage can avail to the borrower by adding some rate of interest and years to complete repayment mortgage. Many borrower issues mortgages on their convenience, some go for a longer period or some shorter.
In case of borrower choosing a longer period to repay the mortgage, payment for monthly instalment will be less and interest will be more while in the case of shorter period, monthly instalment payment will be more with less interest.
Normally, there are two kinds of interest in mortgages. Fixed interest and Variable or adjustable interest mortgage.
Fixed interest mortgage is interest fixed for the whole period of repayment of the mortgage and there are no changes in any kind of situation. Even when the economy downfall or rise. Likewise, Variable or adjustable interest mortgage can be varied after a certain period. The interest rate can go up or down as per the countries economy.
Both forms of interest have their advantages and disadvantages. During such times like this merchant bank can help borrower on finance advising.
What is Merchant Bank?
A merchant bank is a bank that provides services to the client like fundraising, loans, underwriting, making a market for companies in the business world, finance advising or guiding to companies and individuals who has a huge network.
A merchant bank is not meant for the general public as it is not providing any basic services as banking provides like collecting deposits or checking accounts. Merchant bank and Investment bank are similar where investment bank deals with individuals, government and corporation and merchant bank deals only with a huge net worth individuals and multinational companies.
A merchant bank is an expert in international finance, underwriting, fundraising and finance advising. It manages the currency for multinational companies or individuals in time if fund transfer.
If a multinational company wants to purchase a small company in another country and approaches Merchant bank for Advice, Merchant bank offers pieces of advice the best way to approach and acquisition process and it may also assist with providing loans and underwriting.
Some of Services or Functions of Merchant bank are,
- Equity underwriting
- Portfolio management
- Issue management
- Project council
- Finance advising
- Loans
- Raising fund and so on
Merchant bank provides the loans to project and invest in different form investment on behalf of its client and manages by its own. As mentioned above it also provides underwriting service in case of any unsold shares or damages occurs, Merchant bank would buy it guaranteed amount.
It also acts as a partner to the individual who has a huge net worth by issuing the shares to the public. The main funding service for merchant bank is finance advising.
Main Differences Between Mortgage and Merchant Bank
- The main difference between Mortgage and Merchant Bank is the former functions by offering loans from its funds or procure it from a warehouse lender, While the latter is a financial institution that provides services on finance as consultancy services.
- A mortgage company or bank provides services to mortgage to Individuals or Businesses to make a large purchase on real estate. Whereas Merchant bank provides services of financial Advice, underwriting, and loan to multinational companies and Individuals with huge net worth.
- Mortgage earns by selling its mortgage at a premium on the secondary market and originate fees and servicing fees. While Merchant bank providing service of advising on finance and making the market to companies.
- Mortgage follows guidelines as per the NMLS and SAFE Act while Merchant bank follows guidelines regulated by SEBI.
- The mortgage has less risk as it collects surety before mortgage whereas Merchant bank high in risk compared to Mortgage.
Conclusion
Mortgage and Merchant bank are different in many ways. Merchant bank, in case of any investment on real estate or loans to its client, can approach mortgage bankers or brokers Mortgage can lend its services to the general public also but merchant bank plays role in large companies and also to an individual who has a huge net worth.
Mortgage acts as a partner to the individual or businesses by mortgaging to buy home. Before borrowing mortgage from any institution, it better to consult on interest rates and its advantages and disadvantages. In the globalized world, Merchant bank plays a very big role in individual and multinational companies by making the market to the business as well as providing services of advising f\\on finance.
References
- https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=4656&context=ylj
- https://commons.stmarytx.edu/cgi/viewcontent.cgi?article=1396&context=facarticles