What is a Home Mortgage?

A mortgage is the most common way to finance the purchase of a home. There are a variety of mortgage types that people can select from. The type of mortgage that is selected is generally based on the credit history of the borrower, the type of income the borrower lives on, and the size of the loan that is being taken out.

Who is Involved in a Home Mortgage?

There are several interested parties in a mortgage. The creditor is the first major player in a mortgage. They are the ones who provide the financial capital to purchase the property from the original owner. The debtor is the person who is borrowing the money from the creditor in order to purchase a piece of real estate. The debtor uses the property as collateral for the loan in case they default on their payments. Other people, or parties, who participate in the execution and management of the mortgage include: insurance agents, underwriters, and legal professionals.

What Makes Up a Home Mortgage?

Some of the features of a mortgage include principal, interest, and mortgage term. Principal is the amount of money that is initially borrowed. In a traditional loan a person can usually borrow up to 80 percent of the home's value. If the borrower cannot afford to put down a 20 percent down payment then they may opt to use a piggyback mortgage that includes a first mortgage valued at 80 percent of the home's value and a second mortgage valued at 20 percent of the home's value.
 
Interest is the second part of a mortgage. The interest rate that is charged is going to depend on several factors including the borrower's credit score, the type of mortgage that is selected, and the current federal prime rate. There are a few different interest options that can be selected. First there is a fixed interest rate mortgage. In this mortgage type the interest rate is locked in at the beginning of the mortgage and it remains constant throughout the term of the loan. The second interest option is an adjustable rate mortgage. In this type of mortgage the interest rate is periodically adjusted to reflect the changes in the federal prime rate. The third interest option is the interest only mortgage. In this type of mortgage the borrower only has to pay the interest due on the loan each month for the first 5 to 15 years. Then, at the end of this period the principal is re-amortized for the remaining term of the loan.

The third element of a mortgage is its term. Mortgage terms range from 5 years to 50 years. The longer the mortgage term the lower your monthly payments are going to be. The shorter the mortgage term is the lower your interest rates will be and the faster you will be able to earn equity in your home.