Understanding Mortgages: A Simple Guide to Home Loans

A mortgage is a loan used to buy real estate or borrow against the value of a home you already own. The property itself secures the debt, so lenders can offer lower interest rates. If you fail to repay, the lender may foreclose. Mortgage payments usually include four parts, often called PITI: the principal (the borrowed amount), interest (the lender’s fee), local property taxes and homeowners insurance (plus any private mortgage insurance). Most mortgages are repaid over 15 or 30 years with fixed monthly installments. Fixed-rate loans keep the same interest rate throughout. Adjustable-rate mortgages start with a fixed rate for a few years before changing with market conditions. Remember that you will need a down payment—typically 3–20% of the purchase price. In mortgage terms, you are the mortgagor (borrower) and the bank or lender is the mortgagee.

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