What Exactly is a Mortgage?
In the lending world, a mortgage refers to a loan that finances the purchase of a home. Sometimes people refer to it as a home loan, which is slightly different. Once you’re a homeowner, you can take out a home loan against the house to finance a renovation, upgrade, or child’s education. So, a mortgage does differ from a home loan.
Let’s break down the components of a mortgage.
Mortgages finance a home purchase. The house acts as collateral in case the homeowner fails to repay the loan in full at any time during the term. It’s a loan by any other name, so it’s also debt.
Before applying for this loan, an applicant must find out how much financing a lender is willing to lend, the cost of a potential new home, and what their financial picture looks like at that time. All three factors play a role in the total loan financed.
It takes time for a lender to thoroughly assess an applicant’s ability to repay the loan. Several documents are requested to allow the applicant the make their best case.
Once an application is approved, the loan terms consist of several terms including the principal amount, interest rate, and length. There are also fees and taxes. The principal is based on the home’s value while the interest rate is determined by current market trends and the applicant’s credit score. Taxes and fees are standard administrative costs.
Obtaining a mortgage is a long process that involves several moving parts. Mortgage House uses proprietary tools to assess each application on a case-by-case basis such as our mortgage and car loan calculator. For more information, get in touch with our lending team.