Most people think they have an idea of what a mortgage is but really they don’t know the meaning. A mortgage is a loan from a financial institution that enables a borrower to purchase a house without putting up all the cash.
A mortgage is secured by the home itself, so if you default on the loan, the bank can sell the home and recoup the money it provided. These payments are usually monthly and consist of four components: principal, interest, property taxes, and homeowners insurance.
Mortgage Terms and Conditions – What is a Mortgage
Before getting a home loan, you agree to certain terms and conditions, such as how long you have to repay the mortgage (known as the loan term), and how much you’ll pay at closing, representing your equity in the property (known as the down payment).
The down payment is a percentage of the home’s cost, and certain loan types have minimum down payment requirements.
Different Types of Mortgages
As a borrower, you have a lot of options when choosing a mortgage. Here’s a look at the most common types of home loans.
- Fixed-rate mortgages.
- Adjustable-rate mortgages.
- Conventional mortgages.
- Jumbo mortgages.
- Government-insured loans.
- FHA loans.
- VA loans.
- USDA loans.
Mortgages are considered secured loans. This means they’re backed by an asset — a house or any other worthy collateral should you default, or fail to repay the loan. When you default, the lender can take back the house in a process called foreclosure.
Understanding Mortgage Rates
Mortgage rates can and often do change daily (sometimes, even multiple times a day). These rates go up or down based on economic events, yields on the 10-year Treasury, or things like Fed meetings and policy changes.
Your interest rate can also change after you receive a quote, so when you get a good rate, be sure to lock it in and receive written confirmation from your lender. Borrowers repay the bank for their loan at regular intervals, usually monthly.
The payments go toward the total amount of money borrowed, which is called the principal, and the interest, although the latter may be tax-deductible. The process of paying off a mortgage is called amortization. Visit Google for more informtion.