Think you understand how a mortgage works? Test your knowledge by checking out the following:
- The Basics: A mortgage is a home-buying tool, in which case your property is offered to a bank or mortgage lender as collateral for the finances borrowed to pay for the house. Mortgages help both individuals and businesses make large real estate purchases, without paying the full value of the property up-front.
- What Makes Up a Mortgage?: When you are paying off your mortgage, you will be paying a portion of the principal, in other words, the amount you borrowed to buy the home, as well as the interest, property tax, and insurance. You will be required to buy homeowner’s insurance to be approved for the loan, and if your down payment is less than 20%, you may also be asked to take out mortgage insurance.
- Major Types of Mortgages: In traditional, or “fixed-rate” mortgages, the borrower pays the same interest rate for the entire life of the loan, usually over a term ranging from fifteen to thirty years. In an adjustable-rate mortgage, the initial interest rate is often at below- market prices, but then at some point it will fluctuate with market interest rates, making it seem more affordable at first when compared to a fixed-rate loan.
- Foreclosure: Should you be unable to pay your mortgage, the bank may foreclose on you. They can evict you and sell the house, using the proceeds to fulfill your mortgage debt.
Before you consider adding property to your assets, be sure you are familiar with the ins and outs of a mortgage!