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# What Is a Mortgage and How Does It Work
A mortgage is a loan specifically for buying property, where the property itself serves as collateral. If you stop paying, the lender can foreclose and take the house.
## The Basic Structure
You borrow money from a lender (bank, credit union, or mortgage company) to purchase a home. Instead of paying the full price upfront, you repay the loan over time—typically 15, 20, or 30 years—plus interest.
## Key Components
**Principal**: The amount you borrow.
**Interest**: The cost of borrowing, expressed as an annual percentage rate (APR). This is what the lender charges for lending you money.
**Down payment**: Money you pay upfront (often 10-20% of the home's price). The larger your down payment, the less you need to borrow.
**Monthly payment**: Includes principal repayment plus interest. Early payments are mostly interest; later payments shift toward principal.
## The Process
1. Get pre-approved to know your borrowing capacity
2. Find a property and make an offer
3. The lender appraises the home to ensure it's worth the loan amount
4. Close the deal—sign documents and receive keys
5. Begin monthly payments
## Additional Costs
Beyond the monthly payment, you'll handle property taxes, homeowners insurance, and possibly PMI (private mortgage insurance if your down payment is under 20%).
The mortgage is secured debt, meaning the lender has legal claim to your home if you default.
by wairimukariuki
# What is a Mortgage and How It Works
A mortgage is a loan secured by real estate property. When you borrow money to buy a house, the lender (typically a bank) holds a legal claim on the property until you repay the debt in full.
## The Basic Process
**Getting approved:** You apply with the lender, who evaluates your credit score, income, and debt-to-income ratio. They determine how much you can borrow.
**The loan agreement:** You sign documents stating the loan amount, interest rate, and repayment term (commonly 15 or 30 years).
**Monthly payments:** You make regular payments combining principal (the original borrowed amount) and interest. Early payments are mostly interest; later payments shift toward principal.
**Property as collateral:** If you stop paying, the lender can foreclose—taking the property and selling it to recover their money.
## Key Components
- **Down payment:** Money you contribute upfront (typically 3-20% of purchase price)
- **Interest rate:** Can be fixed (stays the same) or adjustable (changes over time)
- **Closing costs:** Fees for appraisal, inspection, title search, and loan origination
- **Property taxes and insurance:** Often bundled into your monthly payment
## Important Reality
Your monthly payment covers more than just the loan. It typically includes property taxes, homeowners insurance, and possibly mortgage insurance (if your down payment is under 20%). This total is called PITI (Principal, Interest, Taxes, Insurance).
The mortgage lets you own property while spreading the cost over decades rather than paying cash upfront.
by nadinewilliams27039