What is a Mortgage?

What is a Mortgage? A Mortgage is a loan that is used to finance a home from a Financial institution. Why are mortgages in place? Mortgages are in place to ensure that the financial institution will be repaid for the home loan. Mortgages are a security instrument used to hold the borrower accountable for the home loan. The title of the home will go to the bank until the mortgage is paid off. When borrowee has repaid mortgage the bank will issue a deed of reconveyance. Transferring the title to the homeowner.

For example, Mark and Lisa just got married. They want to buy their First home, YAY! Together they have saved $12,250. Approximately, 3.5% of the total purchase price. The cost of the home is $337,750. The difference between the down payment and the total cost of the home is $337,750. This amount is the Mortgage. The couple will have to pay the financial institution back each month (principal) plus interest.

Let's say the interest on the amount the bank loans the money to the borrower is 5.5 percent (higher than our current rates, take advantage). If we divide that amount by 12 months we will have .46% that will be accrued on the total loan amount of $337,750, monthly. Accruing an interest of $1,564. Before one gets to paying down their Principal loan of $337,750 their monthly payments of $2,000 would address their interest payment first. As the loan amount over time becomes less the monthly interest accrued becomes less. The Great news is that once payment has been applied to the principal Equity is produced. Equity is a powerful wealth-building tool.

The title of the Home goes to the bank in order for the borrower to secure the loan. The mortgage comes from Old French meaning "Mort"= Dead and "Gage"= Pledge

While the couple is living in their wonderful new home they are paying down their Mortgage, building Equity.