Welcome to Mortgage 101! We’ll fill you in on the basics of mortgage financing, the types of mortgages that are available, and the latest mortgage rates.
Table of Contents
Mortgage 101
What is a mortgage and what is it used for? A mortgage is a type of loan that is used to finance a property or real estate. A mortgage is a legal agreement between a lender and a borrower, where the lender provides the borrower with the funds necessary to finance a property and the borrower agrees to repay the loan on a monthly basis over a set period of time
The financed property serves as collateral for the loan. If the borrower fails to make the payments, the lender can foreclose and sell the property to recoup their losses.
Mortgages come with interest rates, which are fees charged by lenders for making the loan. Mortgage interest rates vary depending on market conditions, credit scores, down payment or equity in the property, and loan type and term.
Most mortgages are structured as long-term loans, with repayment periods ranging from 10 to 30 years.
A mortgage loan is an important tool that allows people to become homeowners without having to pay the full purchase price of real estate up front, but it comes with responsibilities and risks.
Types of Mortgage Loans
We wouldn’t have a proper mortgage 101 guide if we didn’t cover the types of mortgage loans available. There are a wide variety of mortgage products out there that are used for a variety of purposes. Here are some of the most common ones that you may have heard of.
Home Equity Loans
A home equity loan is also commonly referred to as a second mortgage. A home equity loan enables you to borrow a lump sum of cash against your home’s equity, which is the difference between your home’s market value and any outstanding mortgage balances.
Home equity loans are similar to personal loans and cash-out refinances because they usually have fixed interest rates and a set repayment period, such as ten or fifteen years.
Most home equity loans are written as second mortgages (which is why they’re often called second mortgages) behind an existing primary mortgage, but you don’t need to already have a mortgage to get a home equity loan.
Homeowners commonly use home equity loans to consolidate debt, pay for home improvements or repairs, or make a large purchase.
- Home Equity Loan Rates/Second Mortgage Rates
- Arizona Home Equity Loan Rates
- Massachusetts Home Equity Loan Rates
- New Jersey Home Equity Loan Rates
Home Equity Lines of Credit (HELOC)
A home equity line of credit (HELOC) is a type of mortgage that allows homeowners to borrow against their home equity. HELOCs are revolving lines of credit, which means that you can access the funds as needed (up to a certain limit) and only pay interest on the amount you borrow.
The credit line amount is based primary on your credit scores, income, and the amount of equity you have in your home (the difference between your home’s value and the total outstanding mortgage balance).
Homeowners commonly use HELOCs to pay for home renovations, college tuition, debt consolidation, or as a safety net.
HELOCs usually have variable interest rates and the payments are usually interest-only. Additionally, HELOCs typically have a draw period during which you can access the funds. At the end of the draw period, the lender amortizes the payment into a full principal and interest payment that pays off the loan over the remaining loan term.
HELOCs can be a useful financial tool, but it’s important to carefully consider the terms and risks before getting one.
What is a mortgage in simple terms?
A mortgage is a type of loan that is used to finance real estate. The real estate serves as collateral for the loan. If the borrower fails to make the payments, the lender has the right to foreclose and and sell the property to recoup the money the lent.
