Mortgage
Definition
A mortgage is a loan used to purchase real estate, where the property itself serves as collateral for the loan.
Explanation
A mortgage is the most common type of secured loan for homebuyers. The lender provides funds to purchase the property, and the borrower agrees to repay the loan plus interest over a set term, typically 15 or 30 years. If the borrower fails to make payments, the lender can foreclose on the property.
Mortgages come in various types including fixed-rate, adjustable-rate, FHA, VA, and jumbo loans. The key terms to understand are the principal (loan amount), interest rate, term length, and monthly payment. Most mortgages require a down payment of 3-20% of the home's purchase price.
Understanding mortgage types and terms helps you choose the right loan for your financial situation and avoid paying more than necessary over the life of the loan.
Example
A $300,000 mortgage at 6.5% for 30 years requires a monthly payment of about $1,896 for principal and interest, not including taxes and insurance.