Mortgages are one way to make buying a home more feasible. This video explains what a mortgage is and how it helps people to buy homes they otherwise could not afford.
Homes are expensive, and it’s unlikely that you’ll have enough cash on hand to pay for one upfront. Mortgages are loans taken out that are paid off over long periods of time that allow someone to buy a home and become a homeowner.
Mortgages are different from personal or student loans in that the house is put up as collateral. This means that if the mortgage isn’t paid off on time then the bank can seize the home and take ownership.
To get a mortgage, the potential home buyer needs to place a down payment. This is a percentage of the total cost of the home that needs to be paid upfront. Down payments vary from bank to bank, but the minimum is generally 20%.
If the home buyer’s credit score and income statement check out, then they will be granted a loan for the remainder after the down payment is placed. This loan will include a fixed or floating interest rate. Fixed rates are locked in for a certain amount of time, known as a “term”. The time allotted to pay off the loan is known as amortization, and can be 20, 30, 40, or more years.
To learn more about mortgages, take a look at the video above.