What is a Mortgage?Basics for New Comers

The question of “what is a mortgage?” has preoccupied many homeowners over the years. The confusing terminology and different requirements across the different states often leave newcomers confused. Here are some basics to help you.

To begin, a mortgage is simply a loan secured against a property. A homeowner can use the money to buy a home or refinance their current dwelling. Home loans in general are secured loans. Your house serves as collateral for the lender. As such, the lender may foreclose on your house should you default on the loan. If you are not able to repay the mortgages, the lender may seize your home.

There are different types of mortgage available to consumers

Equity mortgage

Home equity mortgages are secured by the equity in a home. This type of mortgage is ideal for people who are looking to build up equity in their home. Home equity mortgages are tax-deductible in most cases, which means they are a wise financial move for homeowners.

Refinance mortgage

Another type of mortgage is a refinance mortgage. Refinancing a home mortgage is a way to combine the payments on existing mortgages with new terms. This is not to be confused with a home equity loan, which is essentially the same thing but has a lower interest rate. When you refinance, you generally choose a lower monthly payment because your debt is decreased. Refinancing is a good option for homeowners who bought a home when interest rates were high and now they are down. It is also a smart decision for retirees and those with poor credit.

Home equity

Another type of mortgages is a home equity line of credit. A home equity line of credit is similar to a credit card. You can borrow against the equity in your home in order to finance any type of loan, regardless of the type. These lines of credit carry a higher interest rate than a conventional loan because they are not backed up by hard cash.

Balloon mortgage

A balloon mortgage is another option for borrowers who need extra money at a certain point in time. This type of mortgage is unsecured, so you will not have to provide collateral. It works in a similar fashion to a conventional loan by making larger payments over time. However, in case of an emergency, the lender has the right to sell your equity to recover some of his losses. So you should only consider this option if you are absolutely positive that you will be able to make the required monthly payments.

Reverse mortgage

One final type of mortgages is a reverse mortgage. This is a unique type of mortgage that allows homeowners to take out funds that are paid off when the homeowner dies, moves away or sells the property. This type of loan is best for older homeowners with low life expectancy because the loan will be significantly cheaper when they are older. There are many advantages to this type of loan. It is a great option for seniors who are looking for a way to generate income when they are no longer able to work.

Final words

If you are thinking of applying for a mortgages loan, then it is important to know what a mortgage is. You should compare the costs of a mortgage to find out if it is a good option for you. Do some research and talk to as many lenders as possible. Once you have found the lender that offers you the best deal, then you should get started applying for your loan. Make sure to do your research and take your time getting the best deal possible.

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