A mortgage is a loan that is used to buy a home. In return for the loan, you pay interest on the amount loaned. The lender also has first rights on your house in case you neglect to pay back the loan.
A mortgage has three components:
- Amount (how many dollars you need to borrow)
- Interest Rate (the percentage rate you pay on the loan)
- Term (how long it will take to pay off the loan, generally 15 or 30 years)
All of these components impact how much your mortgage payment will be. The higher the interest rate, the shorter the term or the larger the amount, the higher the monthly mortgage payment. You have control over the amount and term but the rate is largely set by the market. However, by shopping around you can find the most favorable rate possible and the lender with whom you feel most comfortable.
The two basic types of mortgages are "fixed-rate" and "adjustable rate."
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