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What is a Mortgage?

A mortgage is a loan used to purchase or refinance a property with the property itself serving as collateral on the loan. The type of mortgage a homebuyer chooses depends on their individual situation, needs, and preferences. 

Why is this term important?

Mortgages are important as they allow homebuyers to buy a home sooner than if they had to save up for the entire purchase price and pay for the home in cash. 

If a mortgage loan is not repaid, the lender can take possession of the property and sell it in order to collect the amount they are owed. 

Here is an example:

Typically, homebuyers will pay 5%-20% of the home’s purchase price as their down payment when they buy the home and use a mortgage loan to finance the remaining 95%-80%. 

Mortgages can be open or closed, fixed or variable. There are also second mortgages and reverse mortgages. 

Related Terms

Amortization Period

Related Resources

Mortgages 101: Get to know the basics

What is a mortgage? A mortgage is a loan used…
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