What is a Mortgage?
A Mortgage is a legal document that secures a loan against a piece of real estate, such as a home. The lender can take possession of the property if the borrower fails to meet the terms of the agreement, which typically requires payments on time. Mortgages are available from many financial institutions, such as banks, credit unions and online lenders like Rocket Mortgage(r). When you apply for a mortgage, the lender will review your credit, income, debt and assets to verify that you qualify for a loan and can afford the monthly payment.
Mortgage loans allow individuals and families to purchase homes that they would not otherwise be able to afford with their own funds. Borrowers typically put down a small percentage of the home’s price as a down payment, and then obtain a loan to cover the remainder of the purchase. In exchange for taking on this debt, borrowers gain equity in the property through regular monthly payments that reduce the total amount borrowed over the term of the loan.
Your mortgage payment will include principal (the amount you initially borrowed), interest, property taxes and homeowners insurance. Other fees may also be included, such as a loan origination fee and an application fee. Many lenders offer a variety of mortgage products, including conforming conventional loans, jumbo loans and FHA and VA loans. It’s important to compare rates and fees between different lenders before choosing a mortgage.
The lender will also set an interest rate for the loan, which is the cost to borrow money. Mortgage rates can vary widely, from week to week and from one lender to the next. It’s best to shop around for the lowest rates, as this could save you thousands of dollars over the life of the loan.
In addition to the interest rate, the mortgage will contain information about a down payment (the initial deposit that the borrower makes toward the purchase), an escrow account (which holds the portion of your monthly payments that cover property taxes and homeowners insurance), and occupancy requirements (whether or not the borrower needs to live in the house as their primary residence). Many lenders also offer a range of mortgage options, such as a fixed or variable interest rate, and you may have the option to buy discount points to reduce the loan’s overall cost.
A mortgage involves the transfer of an interest in real estate as security for a debt, which is the most common method of financing real estate transactions. A mortgage can be transferred to a new owner through a process called foreclosure, in which the lender takes ownership of the property. However, most mortgages are assumable, meaning that a borrower can take over the debt from another party under certain circumstances. A borrower should check with their mortgage lender to ensure that the loan is assumable before selling the home. If not, the borrower will need to pay a transfer fee to the lender to complete the assumption.