What Is a Mortgage?

A mortgage is a type of loan used to purchase or maintain a home, land, or other types of real estate.

You agree to pay the lender over time, typically in a series of regular payments that are divided into principal and interest.

The collateral is then used to secure the loan.

How Mortgages Work

Individuals and businesses use mortgage Settlement to finance the purchase of real estate by paying it off over time.

The person who borrows money from a lender gets to repay the money, plus interest, over a specified number of years.

Mortgages are not all fully-amortizing. Some are partially-amortizing, meaning that the regular payment amount will change, but the principal still stays the same.

the cost of the loan will be paid over the life of the loan with each payment.

A typical mortgage term is for 30 or 15 years.

 Mortgages are also known as claims against property.

If the borrower stops paying the mortgage, the lender can foreclose on the property.

 An example would be, if a residential buyer pledges his or her home to a lender, and then the lender has a claim on the property.

This allows the bank to protect its interest in the property should the buyer default on their financial obligation.

When a homeowner stops paying their mortgage, the bank or financial institution typically forecloses on the home.

The Mortgage Process

Would-be homeowners begin the process by submitting an application to a lender for a loan.

If a borrower is unable to repay his/her loan, the lender may ask for evidence of the borrower’s ability.

This includes bank and investment statements, recent tax returns, and proof of current employment.

The loan officer will generally run a credit check as well.

 If the application is approved, the lender will offer the borrower a loan for up to a certain amount at a particular interest rate.

It is possible for home buyers to apply for a mortgage while they're still shopping for a home, which is called pre-approval.

When you're pre-approved for a mortgage, it means that the lender is confident that you can afford the home you're buying. This can be a big incentive for sellers, who may be more likely to accept an offer if it includes a mortgage pre-approval.