What is A Mortgage?

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We often hear the word mortgage in real estate transactions. A mortgage is a long-term loan that you obtain from a bank, online lender, mortgage broker, thrift or other source (sometimes even the property seller) to cover the purchase price of your home, excluding your down payment. The lender holds the home and land as collateral in exchange. You sign documents at the closing table that give the lender a “lien” against your property. The lender has the right to take the home through a process known as foreclosure if you fail to make payments as promised. Large in size, mortgage loans are paid off over long periods. Typically either fifteen or thirty years. Monthly payments chip away at the principal balance, but don’t expect to see that principal balance number go down much during your first few years as a home owner, particularly if you’re using a thirty-year mortgage. That’s because for the first few years you will be paying down your interest and not much of your principal balance.

So where would you be without mortgages? Well for starters, there certainly wouldn’t be very many home owners. The typical individual or family isn’t able to cough up enough to cover the six-digit price tags of homes which makes mortgages a basic necessity for home buyers. Today’s lenders offer a very wide variety of mortgage options to meet the needs of the nation’s wide and varied base of home buyers.

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