What is a Mortgage, Exactly? — The Nitty Gritty Details

There are many different types of mortgages and ways to fund your home purchase, but essentially, a mortgage is a loan where the home and lot serve as collateral. If you default on your payments, the bank can take away your home. This is the last thing you want to happen.

Taking Out a Mortgage Is Not Personal Finance in and of Itself

Remember, the banks don’t check your budgets and sit down with you to financially plot out your monthly payments. They are very likely to loan you much more than you need and potentially, more than you can afford. The more you borrow, the more you pay back and the more you pay interest on.

Consider Interest Rates Before You Sign a Contract

You can explore what kind of interest rates you’ll need in order to make the home affordable. If interest is too high, you won’t be able to meet your monthly mortgage payments and will default. This is why taking fixed and adjustable rates into account can make a huge difference. Sit down with a lender to get pre-approved, then look at your own monthly budgets.

Consult the Professionals (Lenders and Real Estate Agents)

No one wants to take on a debt they can’t pay off, especially a mortgage. Some include PMI payments, escrow and taxes, HOA fees, and other costs you may not be aware of. Find out more about mortgages and their many, many details from a lender, realtor, or real estate agent you can trust.

Final Thoughts

When you think you're ready to buy a home, and you find yourself asking, "What is a mortgage?" it's time to start thinking about personal finance, principal vs interest, and consulting a lender. Learn everything you can before you sign away your life.