What is a ‘Mortgage’

mortgages
Last Updated on: Sep 12, 2017 @ 12:47 pm

A mortgage loan, also referred to as simply a mortgage, is used either by purchasers of real property to raise funds to buy real estate; or alternatively by existing property owners to raise funds for any purpose, while putting a lien on the property being mortgaged.

The loan is “secured” on the borrower’s property through a process known as mortgage origination. Source Wikipedia

In a residential mortgage, a home buyer pledges his property to the bank. The bank has a claim on the house should the home buyer default on paying the mortgage. In the case of a foreclosure, the bank may evict the home’s tenants and sell the house, using the income from the sale to clear the mortgage debt.

Mortgages Types

Fixed rate: The interest you’re charged stays the same for a number of years, typically between two to five years. The interest rate you pay will stay the same throughout the length of the deal no matter what happens to interest rates.

The biggest advantage of having a fixed rate is that the homeowner knows exactly when the interest and principal payments will be for the length of the loan.

Variable rate: The interest you pay can change. With variable rate mortgages, the interest rate can change at any time. Typically, the rate on a variable rate will change every year after an initial period of remaining fixed.