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What Is The Definition Of Mortgage?

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What Is The Definition Of A Mortgage?

Thinking of owning a home? 

Go for it! 

No pandemic should stop you from pursuing your dreams. Settling into one’s own home is part and parcel of almost every human’s dream, so don’t deny yourself. But before going into that, it’s best to understand the jargon that goes with buying a home. And number one on the list is the word “mortgage.” 

All set? 

Okay, here goes. 

So, what exactly is a mortgage? If you check your dictionary, a mortgage is defined as “a type of loan that you get in order to buy the house of your dreams.” Something like that. Basically, a mortgage is a method that allows you to borrow money in order to get that house you’ve been crushing on. Needless to say, it comes in handy, especially if and when you don’t have the funds to do so. 

Before moving on, do you know what makes a loan different from a mortgage? 

Just a thin line, actually. But it will benefit you if you know. When you get a loan, you receive an amount of money and agree to pay it back. A mortgage, on the other hand, is a type of loan you get in order to purchase a property. Essentially, a mortgage is what is called a secured loan. In this case, the customer borrows money with collateral. In a mortgage, the property that you purchase serves as the collateral. If by any chance you stop paying, the creditor forecloses your property.

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Table of Contents

Now, back to mortgage. Maybe this could be lingering in your mind, “Can I be granted a mortgage?” Good question. And a valid one at that. There are certain requirements that will qualify a person to get a mortgage. The basics that you need to cover are financial stability, income reliability, and the use of the loan (ie, 203k FHA Loan) 

Additionally, the creditors will see to it that you have a high credit score. Once all these things are covered, you’re just about done in the first step to making yourself eligible to get a mortgage.  

Perhaps the next question on your list would be, “How does a mortgage work?” 

Once your mortgage gets the green light, your creditor will hand you over a certain amount of funds to purchase that property. 

After which, you agree to pay it back during a certain period of time. Needless to say, there are two things you need to bear in mind here. One, the mortgage comes with an interest. Two, you cannot be regarded as the rightful owner of the property until you have paid your mortgage in full. 

The interest rates vary and are dependent on two factors. Your credit score is one. Having a favorable one shows that you are financially stable and in all likelihood, this will lower down the interest. Therefore, it’s always best to have a good standing. The present market rate is also another factor. It fluctuates and the interest rate will barely depend on that. 

Is everything clear so far? 

Here comes the next question, “How much money can I borrow?” Well, it depends on how much you can afford. 

It will also depend on the market value of the property. The market value is decided through an appraisal. An appraisal is an assessment of the price of your residential property. You should never borrow an amount that is higher than the property’s assessed value. It will also depend on the market value of the property. The market value is decided through an appraisal. An appraisal is an assessment of the price of your residential property. 

Here are some common mortgage jargon to chew on before you apply for a loan. Knowing what they mean will certainly be helpful…

Principal:

The loan principal is the sum of money that you need to pay. It can also be the balance still owed on the land. Take a look at this example, if you loan for $150,000 to purchase a property and you pay back $20,000, your principal is $130,000. A portion of your monthly mortgage goes into paying off your principal

Interest:

You pay interest monthly. This is based on the principal and the interest rate. Over time, the interest is reduced as your principal gets paid off.

Mortgage Term:

This specifies the length of time that you will make payments on your mortgage. A usual mortgage term is 15 years. The shorter the mortgage term is, the higher the monthly payments are. Conversely, the longer the mortgage term is, the lower the monthly payment.

Interest rate:

This is the percentage of the amount of money you pay your creditor every month. It is crucial to note that there are two types of interest rates, the fixed rates, and adjustable rates.

Promissory Note:

This is a written, binding document to pay back the loan along with the other terms that come with it, namely — the amount borrowed, the loan term or the dates to pay back the loan, interest rate percentage, adjustable or fixed interest rate. Others call this a mortgage note.

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