A mortgage is a loan that is used to purchase a home. It is called a "mortgage" because the loan is secured by the home. In other words, if the borrower defaults on the loan, the lender can foreclose on the home and take possession of it.
There are two main types of mortgages: fixed-rate mortgages and adjustable-rate mortgages. A fixed-rate mortgage has an interest rate that remains the same for the entire term of the loan, typically 15 or 30 years. An adjustable-rate mortgage, on the other hand, has an interest rate that can fluctuate over time, usually in response to changes in the market.
When you apply for a mortgage, the lender will consider several factors to determine your eligibility, including your credit score, income, debt-to-income ratio, and the value of the home you are looking to purchase. They will also look at your employment and income history, as well as your assets and liabilities.
Once your application is approved, you will typically have to make a down payment of some sort which is a certain percentage of the home's purchase price. The down payment can vary depending on the type of loan and the lender's requirements. After that the lender may also require mortgage insurance if the down payment is less than 20% of the home's purchase price
Your mortgage payments will consist of two parts: the principal and the interest. The principal is the amount of the loan that you borrowed, and the interest is the fee that the lender charges for lending you the money.
Your mortgage payment is determined by the amount of the loan, the interest rate, and the length of the loan. The longer the loan, the lower the monthly payments will be, but the more interest you will pay over the life of the loan.
Paying off a mortgage early will save you on interest payments. Some mortgage also have a pre-payment penalty, so make sure you understand the details of your mortgage before making extra payments.
Overall, a mortgage is a big financial commitment and it is important to understand all the details of the loan and the lender's requirements before signing on the dotted line. It is always a good idea to speak with a financial advisor or a housing counselor to ensure that you are making the best decision for your unique financial situation.
