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Mortgage
A mortgage is a loan that helps people purchase a home. Bankrate explains. What is a mortgage
A mortgage is a loan from a bank or a financial institution that helps the borrower purchase a house. A mortgage is , so if the borrower on the loan, the bank can sell the home and recoup its losses. Mortgage payments are usually monthly and consist of four components: , , taxes and . Deeper definition
Before getting a mortgage, the borrower agrees to certain terms and conditions. These specify how long she has to pay the mortgage back, which can span decades, and how much she has to pay each year as well as what she’s required to pay at signing, which is a percentage of the home’s cost called a . These terms and conditions also specify the at which interest accrues, and whether it accrues at a , which means the rate stays the same for the entire term of the loan; or at an , where the interest rate can be raised or lowered. Some mortgages are a hybrid of both, like the (ARM), which accrue interest at a fixed rate for the first seven years of its term, after which the lender may adjust the interest rate. Borrowers pay back the bank for their mortgage at regular intervals, usually monthly. The payments go toward the total amount of money borrowed, which is called the principal, and the interest, although the latter is tax-deductible. The process of paying off a mortgage is called . Mortgages are considered , meaning that they’re backed up by an — the house — should the homeowner default. When the borrower defaults, lenders are permitted to take back the house, which is called . For this reason, some lenders require borrowers to take out some kind of insurance, such , which covers material damage to the property, or , which protects the lender in case the borrower defaults. Beyond the basic mortgage, a borrower has several options to choose from when deciding what’s right for her: : In a balloon mortgage, the borrower’s monthly payments don’t fully amortize the loan at the end of the period, with payments starting low but ballooning to a much larger amount at the end of the term. They’re good for people who expect to have a higher income at the end of the borrowing period than when they started, or who expect to sell their home before the loan period ends, but they may require borrowers to refinance their loan or sell the property. Government-backed mortgages: The U.S. government issues mortgages to certain qualifying citizens. These include the U.S. Department of Agriculture (USDA) loan, which is given to rural property owners without adequate housing, and the , which gives federal assistance to lower-income citizens. can also qualify for special mortgages. : Also called a home equity loan, a borrower may take out a second mortgage to acquire a loan using the home’s as . Check out Bankrate’s list of the . Mortgage example
Sandra’s mortgage loan totals $100,000, meaning her principal balance is $100,000. She negotiates a 30-year loan and a 3.7 percent interest rate. The total cost of her mortgage is $165,702 after factoring in interest. That means her monthly payment is $460. She also takes out homeowners’ insurance, which costs an additional $300 per year. More From Bankrate
Top mortgage and real estate news of the week Mortgage rates have been volatile, but there are deals to be had. Here’s why that lower adjustable mortgage rate can be so tempting. Mortgage rates rise ever so slightly. A prepayment penalty discourages borrowers from paying more or paying off the loan. A widely watched inflation report comes out Thursday. With soaring rates squeezing affordability, homebuyers and lenders are taking notice of this oft-overlooked feature. If you have a home equity loan or variable-rate mortgage, pay attention to the Fed. Analysts widely expect the Federal Reserve to again hike its key rate in November.