A mortgage is a type of loan used to finance the purchase of a property, such as a house or a piece of land. The property is used as collateral for the loan, which means that if the borrower fails to repay the loan, the lender can seize the property.
The terms of a mortgage, including the interest rate, the repayment period, and the amount of the loan, are agreed upon by the borrower and the lender at the time the loan is made. The interest rate is the fee charged by the lender for the use of the money, and it can be fixed or variable. The repayment period is the length of time over which the loan is repaid, and it can range from 15 to 30 years, depending on the type of mortgage.
The monthly payments on a mortgage include both the repayment of the loan principal and the payment of interest. Over time, the amount of the loan principal decreases, while the amount of equity in the property increases. This process is known as paying down the mortgage.
Borrowers should carefully consider the terms of a mortgage before agreeing to take out the loan, to ensure that the mortgage is affordable and meets their needs.