CandleFocus

Mortgage

A mortgage is a loan obtained by an individual or business to purchase a property with the property acting as collateral for the loan. The loan will typically be secured by the lender with the deed of the land or property being transferred to the lender as security. Mortgages are long-term debts, typically with a term of 10, 15, 20 or 30 years, and can either be fixed or adjustable rate.

Fixed-rate mortgages are the most common option and allow the borrower to have a fixed monthly payment over the life of the loan. The main benefit to a fixed-rate mortgage is the predictability of future payments, guaranteeing an unchanged payment for the life of the loan.

Adjustable-rate mortgages (ARMs) are another option for buyers and often feature an introductory period of a lower interest rate than the fixed-rate loan. During the introductory period, the interest rate of the loan will remain the same. After the initial introductory period ends, the interest rate may increase or decrease, depending on the terms of the loan. ARM loans offer more flexibility than fixed-rate loans, as they allow the borrower to take advantage of lower rates if rates decrease during the loan’s life.

Mortgage rates can vary widely from lender to lender, so it is important for an individual or business to shop around for the best deal before applying for a mortgage. Factors such as the applicant’s credit score, the location of the property and the size of the down payment can all play a role in the interest rate that is offered.

Mortgage loans are the primary way many people are able to purchase a home, and can be a great tool for building wealth over time. Despite the greater flexibility offered by ARM loans, fixed-rate mortgages remain the most popular option and provide the security of a known payment. However, it is important to be aware of all the options available, as well as the financial implications of each type of loan, in order to make the best decision possible.

Glossary Index