Helpful Mortgage And Real Estate Advice

What Is A Mortgage?

By on November 11, 2013 in Mortgage Videos

What is a Mortgage?

When you are looking to buy a house, chances are you will have to get a mortgage to complete the deal. A mortgage can be considered a house loan that you are taking to bridge the gap between the value of the house, and the amount you can afford to put as a down payment. A mortgage is a written loan contract, typically covered over a period of 15 to 30 years, that promises to pay (in installments) the full value of your house.

Principal and Interest

There are two principle parts to a mortgage, the principal and interest amounts. The principal refers to the amount of money that you have borrowed to get your house financed. The amount of the principal will depend on the value of the house and how much of a down payment you can afford to make. The higher your down payment, the lower your mortgage principal.

The interest on a mortgage refers to the interest rate on your principal amount. This rate, typically between 4% to 5%, is what the lender is charging you for taking out this loan. The principal amount and interest are combined to create your monthly payment schedule for the mortgage. The interest you pay on your mortgage is determined by the current mortgage interest rate, your credit history, and any past loan defaults you may have on your record.

Taxes and Insurance

In addition to the principal and interest amounts, there are also taxes and insurance fees that are added to your mortgage payments. Taxes are typically associated with the property that you own, and will vary depending on the location of your house.

Home insurance is an essential aspect of getting any mortgage deal closed. Very few mortgage companies will agree to your terms unless you have home insurance. After all, your house is the collateral to your loan. If you miss a certain number of payments, the bank/lending company will repossess your house in order to recoup the remaining funds. If your house is not insured, the bank will worry that any accident/natural disaster could drastically reduce the value of your collateral.

If you make regular mortgage payments, and deposited a sizable down payment, it is likely that you will get a great deal on buying your new house. It is important to have a firm handle on your finances before you get into a mortgage deal. The last thing you want is to run into financial trouble with a mortgage hanging over your head.

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About the Author

About the Author: Jessica Lucas is the managing editor for Mortgage Home Base, a top real estate finance blog dedicated to helping borrowers and home buyers understand the home loan process. Follow Jessica on Google +, and share your comments here. .
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