What is a Mortgage?

A mortgage is a type of loan specifically used to buy real estate, such as a home or land. It is a legal agreement between the borrower (homebuyer) and the lender (usually a bank or financial institution) where the lender provides the funds needed to purchase the property, and the borrower agrees to repay the loan with interest over a set period of time.

How Does a Mortgage Work?

When a borrower takes out a mortgage, they typically make a down payment (a percentage of the property's purchase price) and the lender provides the remaining amount as a loan. The borrower then makes monthly payments, which include both repayment of the loan principal and interest on the outstanding balance. The property serves as collateral for the loan, meaning if the borrower fails to make payments, the lender can foreclose and sell the property to recover the remaining debt.

Types of Mortgages

There are various types of mortgages available, including fixed-rate mortgages, adjustable-rate mortgages (ARMs), FHA loans, VA loans, and jumbo loans. Each type has its own terms, interest rates, and eligibility requirements, catering to different financial situations and needs of borrowers.

Benefits of a Mortgage

Mortgages allow individuals to become homeowners without having to pay the full purchase price upfront. It also helps in building equity over time as the property value appreciates, and can provide tax benefits through deductions on mortgage interest payments.