A mortgage is considered a debt instrument that is secured by the collateral of the property you are purchasing. The person who takes on a mortgage is obligated to pay it back in monthly installments. Mortgages are utilized by persons who want to buy personal or business properties and do not want to pay the full value of the property in a single payment.
When a person takes out a mortgage loan, they take it for a specified number of years, with the most common loan lengths being 15 and 30 years. Once the purchaser makes their last mortgage payment, the title is considered clear and transferred from the lender to the purchaser. If a person does not make their mortgage payments, the lender may initiate foreclosure proceedings.
There are several types of mortgages. One is a fixed-rate mortgage in which the interest rate does not fluctuate. The purchaser makes the same payment in last month of the mortgage as they did in the last. Lenders do have the option of raising or lowering monthly payments to keep an appropriate amount of money in escrow, but these payments do not fluctuate greatly and are reviewed yearly.
There is also an adjustable-rate mortgage. In this type of mortgage, the borrower pays according to current market rates. In most cases, the rate is set lower at the beginning to make this type of mortgage more attractive. If the interest rates go down, the mortgage loan payment follow suit. If the rates rise, so does the mortgage payment.
If you have questions regarding the types of mortgage loans available to you, speak with your real estate agent.