A mortgage is a type of loan that is used to purchase a property, typically a home. The borrower (also known as the mortgagor) makes regular payments to the lender (also known as the mortgagee) over a set period of time, usually 15 to 30 years.
Here are some key concepts to understand when it comes to mortgages:
- Down payment: This is the amount of money the borrower puts down upfront when purchasing a home. It is usually a percentage of the total purchase price, with 20% being a common amount.
- Interest rate: This is the percentage of the loan amount that the borrower pays to the lender as a fee for borrowing the money. It can be fixed (meaning it stays the same over the life of the loan) or variable (meaning it can change over time).
- Amortization: This is the process of paying off the mortgage over time through regular payments. Each payment includes both principal (the amount borrowed) and interest.
- Loan term: This is the length of time over which the mortgage is paid off. Common terms are 15 or 30 years.
- Settlement costs: These are fees associated with the purchase of a home, such as settlement fees, title search fees, and legal fees. They typically range from $300 to $500.
- Lender Mortgage Insurance (LMI): If the borrower puts down less than 20% of the purchase price, they may be required to pay for LMI, which is insurance that protects the lender in case the borrower defaults on the loan.
When shopping for a mortgage, it’s important to compare offers from different lenders and consider factors such as the interest rate, loan term, and closing costs. It’s also important to have a good understanding of your own financial situation, including your income, expenses, and credit score.
