According to the National Association of REALTORS®, only about 10 percent of buyers purchase homes with all cash. Everyone else has to borrow at least some of the money to buy their new home. This is done with a special type of loan called a mortgage.
So, what makes a mortgage different from other types of loans?
- Low interest rates — Under 3% annually at the time of writing this article
- Extended repayment periods — Most people pay off their mortgage over 30 years
- Rates and payments are generally fixed — Most people “fix” their mortgage interest rate so their monthly payment will stay the same over the whole loan period. However, adjustable-rate loans are available, too
- The loan is “secured” — Mortgages are secured by the value in your home; if you fail to make payments, the mortgage company can take back (“foreclose”) your house to recoup its losses
In rare cases, you can use a mortgage to cover the whole purchase price of the home. But most people put some of their own money toward the purchase.
The amount paid out of pocket is known as the “down payment.” The mortgage covers what’s left over.
For example, if you bring $25,000 of your own money to a $250,000 home purchase, you have made a 10 percent down payment. The remaining amount — $225,000 — is covered by your mortgage.
The information contained on this website is for informational purposes only and is not an advertisement for products . The views and opinions expressed herein are those of the author and do not reflect the policy or position of Brokerage. Source: The Mortgage Reports