A mortgage is a legal agreement between a borrower (sometimes called a “mortgagor”) and a lender (or “mortgagee”). In exchange for advancing money to the borrower, the lender charges interest. The borrower puts up real estate as security (also called “collateral”) for the loan. If the borrower fails to repay the lender according to the terms of the loan (which is called “default”), the lender can foreclose, taking and selling the property to pay off the loan.
A mortgage loan, also known as a mortgage, is a legal agreement between a borrower (sometimes called a “mortgagor”) and a lender (or “mortgagee”). In exchange for advancing money to the borrower, the lender charges interest. The borrower puts up real estate as security (also called “collateral”) for the loan. If the borrower fails to repay the lender according to the terms of the loan (which is called “default”), the lender can foreclose, taking and selling the property to pay off the loan.
Most mortgages are what is called “fully-amortizing.” Amortization means the borrower repays the loan in a series of monthly installments. These installments are structured so that they cover the interest that is due for that month, and the rest of the payment goes toward reducing the principal balance. Every month, the principal balance gets a little smaller, so less of the payment is required for interest and more can be applied toward the principal. At the end of the loan’s term, the balance is zero.
Mortgages come in several types and can be classified in many ways. Here are some of the most common:
In addition to types of loans, borrowers can choose to customize their loans with additional features. Here are a few of the most common:
All of these options are considered riskier than the typical mortgage terms. They are not very popular and often come with extra costs, tougher underwriting standards, or both.