Mortgage 101

Sunday October 4, 2020

Mortgage 101
Mortgage 101

What is a Mortgage?
A mortgage is a loan that helps you buy a home. When you receive a mortgage, you legally agree to pay off this loan, interests, taxes, and other necessary expenses.

The following is a basic outline of important aspects of the mortgage process.

Important Vocabulary
What is Collateral? Collateral is the property the lender offers to secure the mortgage, usually the home you are looking to purchase with the mortgage.

What is Principal? Principal is the amount of money borrowed.

What is a Down Payment? A down payment is a percentage of the purchase price that you put down to lower the principal amount.

What is Interest? Interest is an amount the lender charges to use the money borrowed, usually expressed as a percentage referred to as the interest rate.

What is Amortization? Amortization is the process of your debt decreasing over the course of monthly payments of principal and interest.

What is Negative Amortization? Be sure to avoid negative amortization. This means that instead of reducing the loan balance over time, some mortgages increase your loan balance and debt over time. This makes paying off your loans a never-ending and expensive task. Find out more about negative amortization here.

What are Mortgage points? Mortgage points are fees paid directly to the lender that have the ability to change your interest rate and closing costs. Positive mortgage points are paid up front at closing and can lower your interest rate. Negative mortgage points increase interest rates but may reduce closing costs.

What is Foreclosure? Foreclosure is when a borrower is unable to pay off the loan and the property is taken back by the lender so they can resell the property.

What is Mortgage Forbearance? Mortgage forbearance is when a lender agrees not to foreclose a mortgage against a borrower who is struggling to meet their payments, to allow the delinquent borrower to eventually fulfill their obligations.

What is Mortgage Refinance? Mortgage refinance is when the borrower gets a new mortgage to replace an old one, often for a better deal. The previous loan must be paid off before creating the new one.

Compare Mortgage Refinance Rates Today.

How to Get a Mortgage
According to Realtor.com, a mortgage consists of 5 parts: collateral, principal payments, interest payments, taxes, and insurance.

There are various types of mortgage rates that you must research to know which one is right for you to commit to. Check out our article on "Finding the Right Mortgage for You" for help. Keep in mind that mortgage rates are dependent on many factors, including economic factors outside of your control and subject to change such as the state of the stock market. Though you can predict the ballpark of your mortgage rate, predicting the exact amount can be difficult as a result.

Long before you apply for a mortgage loan, you must make sure you boost your credit score by keeping track of your credit score and credit report. Check out or articles on "Credit Scores and Credit Reports" and "Repairing a Damaged Credit Score" for concrete tips. You will have to explain any negative instances on your credit report as well as gaps in employment and anything else that could give reasonable suspicion that you are not good for making your payments.

When you are comfortable with your credit report and are ready to look for a lender, make sure you conduct in-depth research on what they charge and the payment options they can offer you. You may want to ask your real estate agent, title company, and social network for referrals. You want to make sure you get a lender that will work with you!

Bottom Line Applying for and paying off a mortgage is a complex and involved process, and you definitely want to do some research to find out if you qualify, how you can apply, who you want as your lender, and what type of mortgage to apply for.

Further reading: Understand the Mortgage Payment Structure The difference between your principal and interest payment and your total monthly payment

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  • Craig Tann Broker
    huntington & ellis, A Real Estate Agency
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