Most people know the basics of a mortgage. They understand that when a person wants to buy a house, they get a loan from the bank. That loan is called a mortgage. That loan, its requirements and obligations, is the fundamental description of what is a mortgage. There are a lot more little nuances to this loan than many people think. And there are a quite a few things that any new applicant for a mortgage should take into consideration.
The word mortgage itself comes from two Latin words. The word mort meaning “dead” and the word gage meaning “pledge.” This dead pledge is one that will exist until the loan is repaid, or dead. The lending institution enters into a contract to lend the money to the buyer. In exchange, the buyer agrees to pay back a set amount for a set period, until the pledge is dead. These set payments consist of four parts: principle, interest, taxes, and insurance. Collectively these are known as PITI.
The total amount of the loan is typically amortized over 15 or 30 years. For most loans the borrower can know they will never owe the bank any more than that set amount for principle and interest each month. What will change, however, is the taxes and insurance part. Taxes almost always go up, and insurance costs increase with time. So as long as the borrower owns the home, they can be assured that the PI will remain level, and the TI will increase every year.
The biggest thing to be aware of when getting into a mortgage is that this is not a short term loan. Even when the buyer only plans to live in the house a few years, they will have to go through the entire application process. This process is complex, and it takes a lot of time to understand (if you want to know what is coming and where the process begins, check out the many articles on Primerates.com about mortgages). The loan process takes time, so the very best thing any applicant can do is to know what to expect, and prepare for it.
Buying a house is an exciting venture. It is also incredibly frustrating for those who did not do their homework. Understanding what is a mortgage is the first step. The next is for the buyer to shop around so they can find the best deal on mortgage rates out there. Finally, they must realize they are in this for the long haul. These loans are designed to last 15 or, in most cases, 30 years. Becoming educated on the loan process is the best way to prepare for that commitment.