Whether you are searching for your first home or moving up to a bigger home, it is important to have a good understanding of what mortgages are and how they work. Mortgages are typically referred to as home loans, but mortgages are not actually loans in the traditional sense. A mortgage loan is actually more of a security instrument than a traditional loan. The money provided by the lender is secured by the property on which the mortgage is written.
The introduction of a mortgage loan actually creates a lien against the property on which it is written. The home itself serves as the collateral for the loan. If the home buyer defaults on the mortgage payments, the bank, credit union, savings and loan or mortgage broker has the right to repossess the home in an attempt to recover the money they are owed. The lien created by the mortgage also means that the home cannot be transferred to another party until the lien is satisfied.
There are several types of mortgages available for home buyers today. The first thing many people think of when they hear the term mortgage is the traditional 30-year fixed rate mortgage. This mortgage provides for a set monthly payment every month for the entire 30-year life of the loan. The monthly payment is determined at the outset of the loan, and the homeowner continues to make payments until the loan is paid off and the lien is satisfied.
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