What is a mortgage?
You’ve probably heard the word “mortgage” a lot in your life. For some, this word can cause stress or panic. A mortgage isn’t really a thing that should cause panic, a mortgage is there to help you in obtaining your goals. Before we can understand how a mortgage can help you, we need to better understand exactly what a mortgage really is.
A mortgage is often referred in several different ways; lien, deed of trust, or home loan. Regardless of how you choose to say mortgage, the definition of a mortgage essentially comes down to an agreement between a bank and a borrower to exchange money for property. Most of us could never pay for a home with all cash, so instead we take out a mortgage and pay it back over a period of time. Basically, the mortgage lender (the bank) will let you borrow a predetermined amount and will require you to pay it (plus interest) back over a set number of years. This is how home ownership can be made affordable.
In a mortgage, your house will serve as collateral. This means that if, for some unforeseen reason, you are unable to continue to make payments on the house, the bank has the right to foreclose. In the event of foreclosure, the bank can evict you from your house and sell it to pay off the remainder of your mortgage.
Mortgages can come in many forms, but the two most common are fixed-rate and adjustable-rate. In a fixed-rate mortgage, your interest rate will never change; meaning your first payment will be the same as your last payment. In an adjustable-rate mortgage, the interest stays the same for a few years but then begins to fluctuate with the market; meaning you first and last payment will most likely not be the same.
Whether your shopping for a mortgage now or in the future, it is always best to shop around to find the mortgage that best fits your needs. Sites like LendingTree are great because they’ll help you shop from several companies. It is also a good idea to check out an online mortgage calculator, to help you get a better understanding of what you can afford.