Mortgage: A loan used to purchase or refinance real estate, in which the property itself serves as collateral for the borrowed amount.
For most homeowners, a mortgage is the single largest financial obligation tied to their home. When you take out a mortgage, a lender provides funds to cover some or all of the purchase price, and you agree to repay that amount over time, typically in monthly installments that include both principal and interest. Depending on your loan terms, your monthly payment may also be bundled with property taxes and homeowners insurance through an escrow account. Common mortgage types include fixed-rate loans, where the interest rate stays the same for the life of the loan, and adjustable-rate mortgages (ARMs), where the rate can change after an initial period. Loan terms most commonly run 15 or 30 years, though other lengths may be available through various lenders.
Watch for: The interest rate on your mortgage has an outsized effect on your total cost of ownership. Even a difference of one percentage point can add tens of thousands of dollars in interest over the life of a typical loan. Additionally, paying private mortgage insurance (PMI) is often required when a down payment is less than roughly 20 percent of the purchase price, which increases your monthly costs until sufficient equity is built. Always review the full loan estimate from any lender, as fees and terms vary widely. HomeRule does not provide lending advice or personalized mortgage recommendations.
See also: Principal and Interest, Escrow, Private Mortgage Insurance (PMI)