What is a Mortgage?
A mortgage is a loan used to purchase or refinance a property with the property itself serving as collateral on the loan. The type of mortgage a homebuyer chooses depends on their individual situation, needs, and preferences.
Why is this term important?
Mortgages are important as they allow homebuyers to buy a home sooner than if they had to save up for the entire purchase price and pay for the home in cash.
If a mortgage loan is not repaid, the lender can take possession of the property and sell it in order to collect the amount they are owed.
Here is an example:
Typically, homebuyers will pay 5%-20% of the home’s purchase price as their down payment when they buy the home and use a mortgage loan to finance the remaining 95%-80%.
Mortgages can be open or closed, fixed or variable. There are also second mortgages and reverse mortgages.