Understanding Mortgage
A mortgage is a loan to finance the purchase of your home. Perhaps the biggest debt you’ll ever take on.
Your home is collateral for the loan, which is also a legal contract you sign to promise that you’ll pay the debt, with interest and other costs. Traditional 15 and 30 year fixed rate home loans are popular when interest rates are low and you plan on staying in your home for more than 10 years. Short-term fixed rate home loans also let you lock-in a good rate and are ideal when you may only stay in your home for a shorter period. Adjustable rate mortgages often begin even lower, and then fluctuate according to the market.
If you don’t pay the debt, the lender has the right to take back the property and sell it to cover the debt. To repay the debt, you make monthly installments or payments that typically include the principal, interest, taxes and insurance, together known as PITI.
The principal is simply the sum of money you borrowed to buy your home. Before the principal is financed you can give the lender a sum of cash called a down payment to reduce the amount of money that will be financed.
