A mortgage is a loan you take out from a mortgage lender to pay for a property. If you don't pay back the loan as agreed the lender can take possession of the property and sell it to repay the loan.
The loan is divided into the capital (ie the amount of money you borrowed to buy your property) and the interest (ie the amount the mortgage lender charges for lending you the money - which is why they're in business). You'll see hundreds of different names for mortages. Ignore them. They all boil down to the two main types of mortgage, "Repayment mortgages" and "Interest only mortgages". What makes mortgages seem complex is the different variations you get on the two basic types.
The mortgage is a legal document that secures the note and gives the lender a legal claim against your house if you default on the note's terms.
The loan is divided into the capital (ie the amount of money you borrowed to buy your property) and the interest (ie the amount the mortgage lender charges for lending you the money - which is why they're in business). You'll see hundreds of different names for mortages. Ignore them. They all boil down to the two main types of mortgage, "Repayment mortgages" and "Interest only mortgages". What makes mortgages seem complex is the different variations you get on the two basic types.
The mortgage is a legal document that secures the note and gives the lender a legal claim against your house if you default on the note's terms.
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Last Updated: Sep 2009
Last Updated: Sep 2009
In effect, you have possession of the property, but the lender has an ownership interest (called an "encumbrance") until the loan has been fully repaid. The lender agrees to hold the title or deed to your property (or in some states, to hold a lien on your title or deed) until you have paid back your loan plus interest.
The mortgage amount is the amount of money you borrow from a lender to pay for your house. The term is the number of years over which you can pay back the amount you borrow. The length of your mortgage repayment period will directly affect your monthly mortgage payments. For the same mortgage principal amount, you will find that the shorter your repayment period is, the higher your monthly payments will be, but the total interest you pay over the life of the loan will be less. On the other hand, the longer your repayment period is, the lower your monthly payments will be, but the total interest you pay over the life of the loan will be more. The most popular mortgage term is 30 years. By extending payment over 30 years, you keep your monthly housing costs low. If you can afford higher monthly payments, you can select a mortgage term that is shorter: there are 20-year, 15-year, and even 10-year fixed-rate mortgages available from most mortgage lenders.
During the term of your loan, you will pay back your mortgage by making regular monthly payments of principal and interest. In the early years of your loan, most of the money you pay will be for the interest you owe. Toward the end of the term of your loan, you will be paying primarily principal. This type of repayment method is called amortization.
The mortgage amount is the amount of money you borrow from a lender to pay for your house. The term is the number of years over which you can pay back the amount you borrow. The length of your mortgage repayment period will directly affect your monthly mortgage payments. For the same mortgage principal amount, you will find that the shorter your repayment period is, the higher your monthly payments will be, but the total interest you pay over the life of the loan will be less. On the other hand, the longer your repayment period is, the lower your monthly payments will be, but the total interest you pay over the life of the loan will be more. The most popular mortgage term is 30 years. By extending payment over 30 years, you keep your monthly housing costs low. If you can afford higher monthly payments, you can select a mortgage term that is shorter: there are 20-year, 15-year, and even 10-year fixed-rate mortgages available from most mortgage lenders.
During the term of your loan, you will pay back your mortgage by making regular monthly payments of principal and interest. In the early years of your loan, most of the money you pay will be for the interest you owe. Toward the end of the term of your loan, you will be paying primarily principal. This type of repayment method is called amortization.
