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Mortgages
What is a
mortgage?
Simply put, a mortgage is a loan to finance the purchase of
a home or property.
With mortgages,
the property is a collateral for the loan, which is also a legal contract
the applicant sign to promise that he will pay the debt, with interest and other costs, typically over 15 to 30 years. If
the loan is not being paid, the lender has the right to take back the property and sell it to cover the debt.
When you assume a
mortgage, you are required to make monthly installments or payments to pay down the loan. These
loan payments are typically comprised of principal, interest, taxes and insurance,
together known as PITI.
Principal -- The
mortgage principal is simply the sum of money you borrowed to buy your
property. Before the mortgage 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.
Interest -- Usually expressed as a percentage called the
loan interest rate, interest is what the lender charges you to use the money you
borrowed with your mortgage. As well as the given rate, the lender could also charge you points, and additional loan costs. Each point is one percent of the financed amount and is financed along with the
mortgage principal.
Principal and interest comprise the bulk of your monthly payments in a process called amortization, which reduces your debt over a fixed period of time. With amortization, your monthly
loan payments are largely interest during the early years and principal later.
In addition to your
mortgage principal and interest, your mortgage payment could include money that's deposited in an escrow or trust account to pay certain taxes and insurance.
A mortgage is a product, just like a car, so the price and
financial terms may be negotiable with the
mortgage lender. You'll want to compare all the costs involved in obtaining a mortgage. Shopping,
comparing, and negotiating may save you thousands of dollars.
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