What is a Mortgage

What is a Mortgage?


Let’s start with the basics. Most home buyers don’t have enough money to buy a house outright for the listing price, which is why mortgages exist. A mortgage is a long-term home loan provided by a bank or mortgage lender to help you purchase property. When you buy a house, the property acts as collateral in exchange for the funds you’ve borrowed. Typically, mortgages last for 15 to 30 years of monthly payments.

A mortgage is made up of several parts:

 
  • Collateral — in this case, the home itself.
  • Principal — the sum of money you borrowed.
  • Interest rate — percentage the lender charges you to borrow the money.
  • Monthly payment — the amount you pay back on your loan each month.
  • Mortgage terms — length of time mortgage agreement with agreed interest rate is in effect.
  • Insurance — homeowner insurance protects your property in the case of fire, theft, bad weather, etc.
  • Private Mortgage Insurance-paid to the lender if the value secured is more than 80% Loan-to Value.
  • Property taxes — a percentage of the value of your home levied by the county.

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