Everyone is always talking about mortgages and how they are paying them, but no one really explains what a mortgage is. We have those questions answered.
What is a mortgage?
A mortgage is a type of loan you get when you want to buy a house. You can also get this loan against the value of your already owned home. There are a lot of types of mortgages, but the most common are:
- Fixed-Rate mortgages: This is the traditional mortgage plan, where the interest you pay will be the same for the whole term of the mortgage. For example, say that you get a 10 year mortgage where you pay a certain amount plus the interest. In this case, the interest will always be the same.
- Adjustable-Rate mortgages: The first term has a rate below the market, but for further payments, the interest rate will adjust based on the current conditions of the market. Let’s take the example of the 10 year mortgage; the interest will change every month during the loan.
How does it work?
The mechanics on this type of loan are “simple”:
- You ask for a loan to be able to buy a house (you can go to almost any bank or credit union to request it).
- Then, you start repaying the money you borrowed, plus an interest (based on the type of mortgage you get), for a determined period of time until you fully repay the loan.
A mortgage is necessary for most people in order to buy a house, so don’t feel intimidated by this term. Although, you should keep in mind that if you stop paying each amount asked to repay the loan, the lender has the right to cancel your mortgage, so having a budget and a good plan are key.