Home Buying 101: What's A Mortgage?
When you are thinking of buying a home it is always wise to get yourself familiar with the basics.
What exactly is a mortgage?
A mortgage is a document; an agreement made between the lender and the buyer that says if payments are not made the lender has the right to take the property back. Most people use the term mortgage to refer to both the mortgage agreement document as well as the loan received for the purchase.
How Is It Different From A Regular Loan?
The difference between a mortgage and a regular loan is that the property itself is the collateral if the loan is not paid. If you default on the payments the bank can take the home back and sell it to recoup some of the losses. This is known as a secured loan.
Mortgages also tend to be extended for a much longer time than other loans (aside from maybe student loans), which makes negotiating interest and insurance a more difficult task. What will your life be like in 10, 20 or even 30 years? For many this is why they work with a mortgage broker to navigate these confusing and complicated terms.
What Kinds of Mortgages Are There?
There are several different kinds of mortgages you can get based on the circumstances of your life - but most tend to not need them.
Second mortgages are loans someone can take out on top of their existing mortgage, which puts the home’s equity up as repayment. There are also a few kinds of government-backed loans, which are generally extended to low-income individuals who qualify, veterans and others.
There are balloon mortgages, which are loans that start off with lower payments that get larger over time (ballooning). These kind of mortgages tend to be useful for people who expect their income to increase significantly over time - people just starting out in high paying fields or building a business.
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