The housing market is an interesting beast, because it comes and goes, rises and falls, allows some people to flourish and brings others to ruins. If you want to understand how the housing market works, you should begin with an introduction to home mortgages. This is part one in a five part series on what you need to know about mortgages before you buy a home.
What is a Mortgage?
According to the dictionary, a mortgage is defined as being the pledging of a property to a creditor to serve as security while a debt is being repaid. In layman's terms, a mortgage is a legal contract that states in no uncertain terms that if you do not pay your entire loan back along with any interest and fees associated with it, then the lender can take your home away from you. Yes, it really is that simple.
In states that follow the concept of title theory, the lender is responsible for holding onto the title of your home until you have completely paid off your debt. If the lender has to, he or she will sell your home in order to get back the debt that is owed if you are unable to make the payments on your mortgage any longer. In states that follow the concept of lien theory, the mortgagee will hold a lien on your property and they can choose to foreclose on this lien, selling off your property in any event that you are incapable of defaulting under your mortgage agreement.
The down payment that you make is a lump sum payment that you make up front, reducing the amount of money that you are going to have to finance in order to pay for the home. You can put any amount of money down that you like, paying as little as 3 to 5 percent or significantly more. Keep in mind that the more you put down in terms of a down payment, the smaller your loan will be, the smaller your monthly payment will be, and the lower your interest rate will generally be as well.
The Mortgage Payment
The Mortgage payment consists of a number of different things; you are not simply paying the principle on the loan. In your mortgage payment you will be paying for:
Principal - This is the total amount that you are borrowing from the lender after the down payment has been made. This is the actual amount that you are financing, or the value of the home plus closing costs and any other applicable fees.
Interest - This is the money that the lender is charging you for the loan that you took out. The interest is a percentage of the total cost of the loan that you are borrowing.
Photo Credits: Rev Dan Catt
Originally posted 2009-08-18 03:05:25. Republished by Blog Post Promoter
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