What Is a Mortgage?
A mortgage is a form of loan that enables people to buy property. It’s similar to other types of loans, such as a personal loan or student loan, but with a few key differences.
A Mortgage is a financial agreement between a borrower and a lender that enables the borrower to purchase real estate (usually a house) by paying the lender upfront, plus interest over time. The loan is secured by the real estate, which means that if the borrower defaults on the loan, the lender has legal rights to repossess the home and sell it to recover the money owed.
The process of getting a mortgage starts with an application for a loan, which involves filling out several pages of paperwork with details about your income, assets and credit history. A mortgage lender will then check your credit report and run a credit score to determine if you’re a good candidate for the mortgage.
Once you’ve submitted your mortgage application, you’ll be given a pre-approval letter, which lets you know how much you can afford to borrow. It will also include any conditions that the lender has placed on your mortgage, such as a minimum credit score or loan-to-value ratio.
You’ll then be able to shop around for the best mortgage rates. Many different lenders offer mortgages, including banks, credit unions, mortgage-specific lenders and online-only lenders.
There are hundreds of different options on where to get a mortgage, so it’s important to comparison-shop to find the best deal. You’ll want to compare the interest rate, loan terms and other features of each type.
The most common type of mortgage is a 30-year fixed-rate mortgage, but you can also choose shorter or longer terms. Taking out a longer-term mortgage typically increases your monthly payments, but it can reduce the total amount of interest you pay over the life of the mortgage.
Another feature of a mortgage is that you can build equity in your home over time. This can make your home more affordable, and it can help you pay for future repairs or improvements.
Whether you choose to buy a new or used home, you’ll need to put down a deposit of at least 20 percent to secure the loan. The down payment is often repaid at closing, when the seller transfers ownership of the home to you and receives the full amount of your loan.
Your mortgage contract should state the interest rate, the loan amount and whether you’ll pay the mortgage in monthly or bi-monthly installments. It should also mention the length of your mortgage term and whether you’ll have to make payments on a fixed or adjustable basis.
You may also find it useful to have a mortgage calculator that allows you to see how much you’ll be paying on your mortgage, and what that will mean in total over the years. This is a good way to make sure you’re not spending more than you can afford and that your payments will allow you to save for the down payment and other home-buying expenses.