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What Is A Mortgage?
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Published: September 10, 2007
Chances are, if you ever dream of owning your own home or piece of real estate, it will come with the thing bill-payers dread: a mortgage. This is a way to utilize property a person has as a promise or security to pay back owed money. The most common use of a mortgage is to pay back what is owed after purchasing a home.
Since most people are unable to pay for their homes with cash, a mortgage becomes a necessary part of the home-buying process for most people.
Owning real estate is a great way of building equity, so it is no surprise mortgages are common in areas where many people strive to own their own home rather than rent. Other ways of building equity are putting down a large down payment and choosing a shorter mortgage term. As what is owed becomes lower and the house increases in value, the homeowners are building equity. Spain, the U.K. and the U.S. are a few countries where mortgages are also typical. Generally, mortgages are found in 15, 20 or 30 year options.
A mortgage cannot exist without two important people, the creditor and the debtor. The creditor is also known as the mortgagee or the lender. This is the bank, insurer or financial institution that provides the money to buy the real estate. The debtor, also known as the mortgagor, borrower or obliger is the individual that needs the money. With a mortgage, the debtor agrees to meet the conditions of the loan. If they do not, the creditor can then take over the property and sell it to cover the debt, referred to as foreclosure.
Sometimes, the lender requires the borrower to provide a down payment upfront. Twenty percent of the home's price is a very typical amount. Other times, though, the down payment is less than 20%, such as 5% or even no money down. Also, the lenders provide their borrower with an amortization schedule for paying back the loan. This shows how much of the loan's interest and principal has been paid off monthly.
When applying for a home loan, it is important to understand the differences between types of mortgages and loan rates. A fixed-rate stays the same throughout the entire period. Whether the period is 15 years or 40 years, it will stay constant. However borrowers will generally end up paying more money in interest if the mortgage is for a long period of time.
A fixed-rate is a good option for homeowners who are planning on keeping their house for at least five years. An adjustable-rate fluctuates in relation to its financial index. The payments often start out low, but tend to grow larger in time. An adjustable-rate is a good choice for homeowners who plan to resell their house soon or who are confident their income will steadily increase.
Although many people dread making their mortgage payment, since it is often their most expensive bill, it is essential for most. Also, diligently and reliably making monthly payments is an effective way to build up good credit. If possible, it is ideal to pay more money monthly than owed. This will result in a credit, and the debt could be paid back quicker than expected. For most, a mortgage is the only way to afford owning a home, making this kind payment invaluable.
Sources:
"Mortgage." Wikipedia. April 2007. 6 Aug. 2007. http://en.wikipedia.org/wiki/Mortgage.
"What is a Mortgage?" Freddie Mac. 2007. 6 Aug. 2007. http://www.freddiemac.com/corporate/buyown/english /mortgages/what_is/.
"Fixed or Adjustable?" FreddieMac. 2007. 6 Aug. 2007. http://www.freddiemac.com/corporate/buyown/english /mortgages/selecting/fixed_or_adjustable.html.
"Facts for Consumers." Federal Trade Commission. Jan. 1999. 6 Aug. 2007. http://www.ftc.gov/bcp/conline/pubs/homes/bestmorg .shtm.
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Owning real estate is a great way of building equity, so it is no surprise mortgages are common in areas where many people strive to own their own home rather than rent. Other ways of building equity are putting down a large down payment and choosing a shorter mortgage term. As what is owed becomes lower and the house increases in value, the homeowners are building equity. Spain, the U.K. and the U.S. are a few countries where mortgages are also typical. Generally, mortgages are found in 15, 20 or 30 year options.
A mortgage cannot exist without two important people, the creditor and the debtor. The creditor is also known as the mortgagee or the lender. This is the bank, insurer or financial institution that provides the money to buy the real estate. The debtor, also known as the mortgagor, borrower or obliger is the individual that needs the money. With a mortgage, the debtor agrees to meet the conditions of the loan. If they do not, the creditor can then take over the property and sell it to cover the debt, referred to as foreclosure.
Sometimes, the lender requires the borrower to provide a down payment upfront. Twenty percent of the home's price is a very typical amount. Other times, though, the down payment is less than 20%, such as 5% or even no money down. Also, the lenders provide their borrower with an amortization schedule for paying back the loan. This shows how much of the loan's interest and principal has been paid off monthly.
When applying for a home loan, it is important to understand the differences between types of mortgages and loan rates. A fixed-rate stays the same throughout the entire period. Whether the period is 15 years or 40 years, it will stay constant. However borrowers will generally end up paying more money in interest if the mortgage is for a long period of time.
A fixed-rate is a good option for homeowners who are planning on keeping their house for at least five years. An adjustable-rate fluctuates in relation to its financial index. The payments often start out low, but tend to grow larger in time. An adjustable-rate is a good choice for homeowners who plan to resell their house soon or who are confident their income will steadily increase.
Although many people dread making their mortgage payment, since it is often their most expensive bill, it is essential for most. Also, diligently and reliably making monthly payments is an effective way to build up good credit. If possible, it is ideal to pay more money monthly than owed. This will result in a credit, and the debt could be paid back quicker than expected. For most, a mortgage is the only way to afford owning a home, making this kind payment invaluable.
Sources:
"Mortgage." Wikipedia. April 2007. 6 Aug. 2007. http://en.wikipedia.org/wiki/Mortgage.
"What is a Mortgage?" Freddie Mac. 2007. 6 Aug. 2007. http://www.freddiemac.com/corporate/buyown/english /mortgages/what_is/.
"Fixed or Adjustable?" FreddieMac. 2007. 6 Aug. 2007. http://www.freddiemac.com/corporate/buyown/english /mortgages/selecting/fixed_or_adjustable.html.
"Facts for Consumers." Federal Trade Commission. Jan. 1999. 6 Aug. 2007. http://www.ftc.gov/bcp/conline/pubs/homes/bestmorg .shtm.
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