What Is a Mortgage and How Does it Work?

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If you want to own a home, you may need to take out a mortgage to pay for it in monthly payments. A mortgage is a contract between a lender (bank or mortgage lender) and a borrower (you).

COSTA MESA, Calif. - eTradeWire -- If you want to own a home, you may need to take out a mortgage to pay for it in monthly payments. A mortgage is a contract between a lender (bank or mortgage lender) and a borrower (you). A mortgage enables a lender to loan money to the borrower to buy real estate property based on a promise to repay the loan. Mortgages are also called "liens against property" or "claims on property." There's not much difference between taking out a mortgage and financing a car. There's usually interest affixed to the loan too, so you're paying the bank/mortgage lender more than the cost of the home. If you don't make the agreed-upon monthly payments, the lender can foreclose the home and take possession of the home. During a foreclosure, the lender can legally evict you for not making payments and sell the home to clear the debt.

What Kinds of Mortgages Are There?

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Some mortgages are as short as five years old and some as many as 50 years or more. The longer you extend a mortgage, the less you pay monthly but the more you pay in interest in the long-run.

What's the Most Popular Type of Mortgage Loan?

The 30-year fixed and 15-year fixed mortgages are the most popular types of mortgages. They are also the most traditional. What makes fixed-rate mortgages more popular is that the borrower pays the same interest rate for the duration of the loan. This is significant because if interest rates rise in the market, they can heavily impact mortgage payments.

With an adjustable-rate mortgage (ARM), the interest rate is fixed in the beginning, usually for a short period of time and at a very low rate but then fluctuates with market interest rates. Often, people choose this type of loan because it's easier to afford the mortgage the first few years, but in the long-run, the mortgage may become unaffordable. However, interest rates can also drop, but you're never sure which way they will go with an ARM. For the full article visit: https://smartfinancial.com/what-is-a-mortgage

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