A Simple Definition Of A Mortgage
Before we dive in, let’s talk about some mortgage basics. First, what does the word “mortgage” even mean?
A mortgage, also referred to as a mortgage loan, is an agreement between you (the borrower) and a mortgage lender to buy or refinance a home without having all the cash upfront. This agreement gives lenders the legal rights to repossess a property if you fail to meet the terms of your mortgage, most commonly by not repaying the money you’ve borrowed plus interest.
Who Gets A Mortgage?
Most people who buy a home do so with a mortgage. A mortgage is a necessity if you can’t pay the full cost of a home out of pocket.
There are some cases where it makes sense to have a mortgage on your home even though you have the money to pay it off. For example, investors sometimes mortgage properties to free up funds for other investments.
What’s The Difference Between A Loan And A Mortgage?
The term “loan” can be used to describe any financial transaction where one party receives a lump sum and agrees to pay the money back.
A mortgage is a type of loan that’s used to finance property. A mortgage is a type of loan, but not all loans are mortgages.
Mortgages are “secured” loans. With a secured loan, the borrower promises collateral to the lender in the event that they stop making payments. In the case of a mortgage, the collateral is the home. If you stop making payments on your mortgage, your lender can take possession of your home, in a process known as foreclosure.