What Is a Mortgage?

Not many home buyers have the cash to buy a home, so they borrow money from a lender in the form of a mortgage. A mortgage is a long-term loan from a bank, thrift organization, mortgage broker or a credit union. The house and the land it is built on serve as the collateral for the loan. This means that you agree to forfeit your rights to the property (to the lender) if you are unable to repay the loan according to the agreed-upon terms. Mortgages are a substantial obligation and are usually structured to be paid in monthly payments over a lengthy time period, usually from 15 to 30-years.

The key aspects of a mortgage are:

1. The Principal: The amount of money being borrowed.
2. Interest Amount: The interest amount you pay the lender for the use of the money they lend you.
3. Loan Term: The length of time over which you agree to repay the loan.
4. Amortization: The amount needed to pay back the principal and the interest over the term of the loan.