Mortgage 101: An Introduction to Mortgages

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:

  1. 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.
  2. 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).
  3. 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.
  4. Loan term: This is the length of time over which the mortgage is paid off. Common terms are 15 or 30 years.
  5. 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.
  6. 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.

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