What Is a Mortgage Loan?

mortgage loan

mortgage papers

Mortgage is a loan that is taken out to purchase a home. In this kind of a loan, your house will serve as collateral in case you are unable to make the payment to purchase the house. The bank or any other mortgage lender will lend you a large amount of money which will be almost 80% of the price of the home to acquire your home. This amount needs to be paid back to the lender with a rate of interest which will be charged over a length of time. In case you are unable to pay back the mortgage loan, the lender can take possession of your home through a process called foreclosure.

mortgage application

Mortgages were uncommon in the 1930s where only four out of ten American families could afford their own homes. This is because people did not have enough money to purchase homes with just one large cash payment. During this time, there were no bank loans dedicated towards helping people purchase homes. This is unlike today where mortgages exist.

mortgage house

Typically, banks hand out a mortgage loan rather than any other financial institution. You can go with your current bank or you can decide to take a loan with a new bank. If you feel you do not know enough or do not have the time to look into new banks, a mortgage broker can do the job for you for a fee. Even though banks are the popular choice for mortgage loans, there are other methods too such as credit unions, government agencies and pension funds.

mortgage broker

Interest rates are also a part of mortgage loans just like with other loans. The period of interest can either be fixed or flexible and can range from five to thirty years. Mortgage loans are not cheap and have a lot of other additional costs.