What is mortgage? A mortgage is a loan bank or mortgage lender that helps you finance the purchase of a house. It is most advantageous to borrow approximately 80% of the value of the house or less. The house you buy acts as collateral in exchange for the money you are borrowing to finance the mortgage for a house. A mortgage payment is composed of four parts: principal, interest, taxes and insurance. It is normally paid on a monthly basis.
Principal is the total amount of money you borrowed to buy the home, for example if you have a $400,000 mortgage loan, the beginning principal balance is $400,000.
Interest is the price you pay to borrow money from your lender.
Taxes are the property taxes you pay as a homeowner. They are typically calculated based upon the value of your house.
Mortgage insurance includes homeowners insurance and could include mortgage insurance. You are required to get homeowners insurance by your lender to cover your house and possibly the property inside. Typically for conventional loans, if your down payment is less than 20% you will have to pay mortgage insurance which protects the lender if you default on your mortgage loan.
When you get a mortgage you will sign legal documents known as mortgage note that promise you will repay the balance of your mortgage, with interest and other possible costs over a set period of time. If you default on your mortgage payments, the lender is allowed to take back the house and sell it. This legal process is known as foreclosure.