What is mortgage and how does it work?

World of translation : Economy
, 18:52

When you are an absolute beginner in the world of real estate, the mortgage may be for you scary term. You've no doubt heard that word before, but except for a vague idea which is associated with the property and the Bank what is a mortgage?

This is a legal agreement in which property is used as security for repayment of the loan. If all the agreed conditions for the mortgage are fulfilled, the borrower will own the property immediately to the end of a specified period.

simply put, is a loan that you take out to pay for a home or other property.


Each mortgage consists of three components:

  • the principal amount;
  • %;
  • period of amortization.

Let's look at these components in more detail.


principal amount of mortgages

This is money that you borrow from a lender. If you have a mortgage on $ 100,000, this does not mean that that was the sale price of the property; this is the amount that you borrowed the Bank to purchase the property.

Your principal amount on your mortgage is the sales price of the property less your down payment, that is the amount that you pay in advance to buy property.


of Interest

This is the benefit of any loan, whether a mortgage or a student loan to study at University. Of course, the lender will lend you money for a fee. This Commission calculation is quite complicated and depends on the base rate.

Other factors that determine your personal interest rate on a mortgage loan include your personal credit rating and income.

As with any other loan, all interest paid to your lender are added to your principal, which means that you pay more than you borrowed.


amortization of loan

It refers to the period of time during which you make scheduled payments to repay this loan.

the amortization Period should not be confused with the term of the loan time period during which coordinated your specific loan parameters (such as interest rate and payment amount), while the amortization period determines how long you need to repay the loan.

the longer the amortization period the lower the monthly payment. The shorter the amortization period, the less you will be charged interest during the term of your loan.

Translated by "Yandex.Translate": translate.yandex.ru.

Author: World of translation
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