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.
Exam Tip
Mortgage = loan for real estate. Property is collateral. PMI required if <20% down.
What is a Mortgage?
A mortgage is a secured loan used to buy real estate. The property itself serves as collateralāif 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
Real EstateA deed is a legal document that transfers ownership (title) of real property from one party to another.
Foreclosure
Real EstateForeclosure 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 (Real Estate)
Real EstateEquity is the difference between a property's current market value and the amount owed on the mortgage, representing the owner's ownership stake in the property.