If you're asking, "What's a mortgage?" you might be trying to buy a house or trying to figure out how to do a refinance.
Understanding what mortgages are and how they work can be helpful throughout your life. Continue reading this article to learn what mortgages are and how they work.
When you take on a mortgage, you're getting a loan from a bank or private lender. Both businesses and individuals can get mortgages to purchase property, and there are different types of mortgages from traditional mortgages to cash out refinance mortgages.
Like many other loans, mortgages require that you pay monthly payments until you pay them off. Depending on how high your credit score is, you may be able to get a very attractive interest rate.
Keep in mind that if you stop paying on your mortgage, your home will go into foreclosure, and you will no longer have a home because the lender will now own it.
Breaking Down a Mortgage
When you go to get a mortgage, you'll need a downpayment in most cases. There are some loans like VA loans where you can pay 0% down and still get the loan. The downpayment is how much money you can put toward the house right now and will reduce the amount of money you owe on the house.
The principal of your loan is how much you owe the lender, the interest rate is the percentage you're being charged for the loan, and closing costs are all costs associated with closing the loan.
In some cases, you will also need to buy private mortgage insurance, which provides protection in case you are hurt and not able to pay on your mortgage.
Different Types of Mortgages
It can be confusing when you hop into the sea of mortgages. To keep it simple, let's focus on the two basic types of mortgages.
Those two types of mortgages are fixed-rate mortgages and adjustable-rate mortgages.
Fixed-rate mortgages require payments with the same interest rate throughout the time of the loan, while adjustable-rate mortgages will adjust according to the market, which may be good or bad for your wallet.
Now on top of those types of loans, there are government loans like FHA, USDA, and VA loans, which all have their own terms. If you can get approved through one of these programs, it is likely you're not going to have to have much money—if any—for a down payment.
When you work with a mortgage professional, they will be able to tell you what the best option is for you.
What's a Mortgage? - Now You Know
Now you know more about mortgages and have the answer to "What's a mortgage?" Being able to understand mortgages and how they work can help you throughout life when you need to use them.
Do you want to learn more about finances and other important topics? Continue reading our blog to get the information you need.