For many, the concept of buying property seems completely unfamiliar - and paying for it might make you wonder, “what is ‘the mortgage,’ anyway?” If you’ve rented a house or apartment before, you’re familiar with monthly payments and extra fees for maintaining the property. But how is a mortgage different?
To help you gain a better understanding of what a mortgage actually is and how it works, here is a quick guide to the basics:
Mortgage basics
You can think of mortgages similar to car loans. You pay monthly repayments with fixed interest until you pay off the loan.
Mortgage loans work because only few buyers have the money they need up front to make this kind of huge purchase. Instead of paying out-of-pocket, a mortgage helps you spread your purchase costs over several years, allowing you to buy homes at lower costs.
How are mortgages different from other loans?
Mortgage loans have interest rates and agreed upon repayment periods like any other loan. However, some important distinctions distinguish mortgage loans from other types of loans.
A mortgage is a secured loan, which means it requires collateral - an asset the lender can seize if you default on the loan. In the case of mortgages, the property itself is collateral.
An unsecured loan doesn’t require collateral, but may have higher interest rates or minimum qualifications to help the lender mitigate risk.
What goes into a mortgage payment?
You pay your mortgage payment monthly. Mortgage loans comprise four major costs: principal, interest, taxes and insurance. Principal is the actual amount of money you borrow, and interest is the percentage that goes back to the lender.
Property taxes and insurance also factor into your monthly payment. Insurance could be either mortgage insurance or homeowners insurance, depending on which type you have.
Do I own my home when I have a mortgage?
Buying a home means you’re responsible for making decisions about the property, but a mortgage can make the concept of ownership confusing. However, the simple answer is yes, you do own your home as long as the terms of the mortgage are met.
Even knowing the basics about a mortgage loan, the process can seem daunting. However, this key information will help guide you through the process of becoming a homeowner.
About the Author
Sandy Malbrue
Hi, I'm Sandy Malbrue and I'd love to assist you. Whether you're in the research phase at the beginning of your real estate search for representation or you know exactly what you're looking for, you'll benefit from having a real estate professional by your side. I'd be honored to put my 14 years real estate experience to work for you. Be it to gain wide exposure for your home with my marketing plan, negotiate offers or manage the transaction once you've accepted an offer, in a way that will get you the best price and cause the least amount of disruption to you life as possible.
If you are a buyer, allow me put those skills to work for you to help with the pre-approval process, work with you to locate and arrange for you to view homes of interest to you , and negotiate your offer. Once you have an accepted offer, I will help you arrange inspections, I will manage the transaction for you, from helping to arrange for inspections to keeping you up to date on contingency removals and walking you through the process to a new set of keys.
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