A Simple Definition Of A Mortgage
A Simple Definition Of A Mortgage
Mortgages are an essential part of home ownership. If you’re thinking about buying a house or know someone who is, it can be helpful to understand the basics of how mortgages work and how to get one. Not sure where to start? This guide will help you navigate the world of mortgages so you can feel confident in your financial decision-making.
What is a Mortgage?
We thought you’d never ask.
A mortgage is a loan used to purchase a home. It’s typically repaid over several years, with monthly payments towards the interest and principal owed. Each month, you’ll pay more than just interest; your payment also covers the principal amount borrowed (the money you’ve borrowed).
Once you make enough payments to pay off your loan, you own your home free and clear!
Who provides Mortgages?
There are two main ways to get a mortgage: through a bank or credit union (also known as “conventional” mortgages) or through other financial institutions like mortgage companies or brokers (also known as “non-conventional” mortgages).
Who Gets A Mortgage?
Lots of people and only a few caveats.
Anyone with a steady income and a good credit rating can get a mortgage. Mortgage lenders want to see that you have enough income to repay the loan. They also want to see that you are not going to miss payments. This is why paying your bills on time is important and not running up your balance on any credit cards or loans. If you do this, then you have a good chance of getting approved for a mortgage.
The Difference Between Loans And Mortgages?
Now that you know the basics of a mortgage let’s look at how it differs from other loans.
The main difference between mortgages and other loans is that they have different term lengths. A mortgage lasts for a long time—usually 30 years or more—while most other loans are short-term. Mortgages are also secured by collateral, like your home or car, while most other unsecured loans aren’t secured at all. If you don’t pay back your loan (or miss a payment), the lender can repossess whatever asset they’re secured against, whether that’s your car or house! Because of these differences in terms of term length and collateral requirements, you’ll have to pay more interest on mortgages than other kinds of loans.
How Do Lenders Set Interest Rates?
The market sets interest rates. This means that when you decide to get a mortgage, your lender doesn’t have much say in what you will pay. Instead, it is up to all other lenders in that market to determine what they are willing to offer for a loan at any given time.
Lenders set interest rates based on the risk and security of the loan. They charge higher interest rates for loans with lower credit scores or less stable employment history because they risk these loans more than other types of mortgages with better credit scores and job stability.
You’ve made it to the end of this article (congrats btw) and hopefully have a better understanding of mortgages and how they work. So many people are getting into trouble with mortgages because they don’t understand what it takes to get one. We hope this was helpful for anyone trying to figure out how much house they can afford or if they should even get one in the first place! If you’re a “numbers” guy or gal, check out our mortgage calculator.