Mortgage
A mortgage is a loan used to purchase real estate, where the property serves as collateral, typically repaid over 15-30 years with interest.
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Exam Tip
Mortgage = loan for real estate. Property is collateral. PMI required if less than 20% down.
What is a Mortgage?
A mortgage is a secured loan used to buy real estate. The property itself serves as collateral—if you don't repay, the lender can foreclose and take the property.
Key Mortgage Components
| Component | Description |
|---|---|
| Principal | Amount borrowed |
| Interest | Cost of borrowing |
| Term | Length of loan (15, 30 years) |
| Down Payment | Initial payment (typically 3-20%) |
| Collateral | The property itself |
Types of Mortgages
| Type | Features |
|---|---|
| Fixed-Rate | Interest rate stays same for life of loan |
| Adjustable-Rate (ARM) | Rate changes after initial period |
| FHA Loan | Government-insured, low down payment |
| VA Loan | For veterans, no down payment |
| Jumbo Loan | Exceeds conforming loan limits |
| Conventional | Not government-backed |
Monthly Payment (PITI)
| Component | Description |
|---|---|
| Principal | Paying down the loan |
| Interest | Lender's charge |
| Taxes | Property taxes (escrow) |
| Insurance | Homeowners insurance (escrow) |
Amortization
Early payments are mostly interest. Over time, more goes to principal. A 30-year mortgage is fully amortized over 360 payments.
Private Mortgage Insurance (PMI)
Required when down payment is less than 20%. Can be removed once equity reaches 20%.
Study This Term In
Related Terms
Deed
A deed is a legal document that transfers ownership (title) of real property from one party to another.
Foreclosure
Foreclosure is the legal process by which a lender takes ownership of a property when the borrower fails to make mortgage payments, typically after several months of default.
Equity (Securities)
Equity represents ownership interest in a company, typically in the form of common or preferred stock. Shareholders are owners who share in profits and have voting rights but bear the most risk if the company fails.
Amortization
Amortization is the process of spreading loan payments over time in regular installments, with each payment covering both principal and interest, gradually reducing the loan balance to zero.
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