What is a Mortgage and How Does it Work?

A mortgage is an agreement between a borrower and a lender that gives the lender the right to keep the borrower's property if they don't return the money they borrowed plus interest. Mortgage loans are used to purchase a house or to borrow money against the value of a home that is already owned. A mortgage is a type of loan that is used to buy or maintain real estate, such as a house, land, or other property. The borrower agrees to pay the lender over time, usually through regular payments that are divided into principal and interest. The property then serves as collateral for the loan.

A mortgage is a loan from a bank or other financial institution that helps a borrower purchase a home. The mortgage security is the home itself. This means that if the borrower doesn't make their monthly payments to the lender and doesn't repay the loan, the lender can sell the house and get their money back. In simple terms, a mortgage is a loan where your house acts as collateral. The bank or mortgage lender lends you a large amount of money (usually 80 percent of the price of the home), which you must repay (with interest) over a certain period of time.

If you don't pay back the loan, the lender can take your house through a legal process known as foreclosure. A mortgage is a loan granted by a mortgage lender or bank that allows someone to buy a house or property. While it is possible to apply for loans to cover the full cost of a home, it is more common to get a loan for about 80% of the value of the home.


are long-term financial commitments that require borrowers to make consistent payments for decades. In case of foreclosure, the lender can evict residents, sell the property, and use the money from the sale to pay off the mortgage debt.

The money you pay for interest goes directly to your mortgage provider, who passes it on to your loan investors. No matter what stage of the homebuying and financing process you are at, Rocket Mortgage has all of the items and resources you can trust.

Adjustable-rate mortgages

(ARMs) were introduced in the 1980s, loans with an even lower initial interest rate that is adjusted or “reinstated” every year for the life of the mortgage. The initial interest rate is usually lower than market rates, which can make the mortgage more affordable in the short term but possibly less affordable in the long term if rates increase significantly. Your down payment will determine your loan-to-value ratio, which is an important factor when it comes to your mortgage rate. There are also reverse mortgages for seniors who want to take advantage of their equity without having to make monthly payments.

The lender will transfer ownership back when the money is returned when the mortgaged property is fully transferred to the mortgagee. If your mortgage is based on an owner-occupied refinance, you should be able to rescind it if you wish. Unlike term mortgages, where borrowers pay back loans over time and balances decrease, “with reverse mortgages, lenders give you money over time and balances increase over time” Packer adds. With an adjustable rate mortgage (ARM), interest rates are fixed for an initial term after which they may change periodically based on current interest rates. The amount you'll have to pay for your mortgage depends on its type (for example, fixed or adjustable), its term (for example, 20 or 30 years), any discount points paid, and current interest rates.

What changes from month to month and from year to year is how much of your payment goes towards paying off principal and how much goes towards pure interest.

Rosanne Pacana
Rosanne Pacana

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