What is a mortage?
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In this case a Mortgage is a financial instrument (contract) between the purchaser orf eeal estate and the lender whereby the purchaser borrows the money from the lender to give to the landowner in order to secure the property and uses the property as collateral for the loan in addition to providing payments to the lender in the form of interest until the loan is paid off.
The Mortgage contains certain conditions such as proof of identity; amount to be purchased; interest to be paid; location of the property or item to be purchased; duration of the loan; agreement to pay in a timely manner and to acknowledge payment in a timely manner, schedule of payment; terms of default, avenues of redress and explanation of penalties for failure to perform.
There are many different kinds of mortgages and a mortgage can be structured in any way that all the parties agree upon. Most mortgages are 30 year fixed interest rate mortgages but there are also 15 year, 10 year, 3 year, 5 year, balloon mortgages, adjustable rate mortgages and more.
Lenders advertise their mortgages as "products" and compete on "interest rates" and "closing costs". Many lenders are willing to provide a better interest rate if the purchaser is willing to pay "points". A point is 1 percentage point of the loan amount. Typically the lender will reduce the interest rate a certain amount for each point paid up front. This allows the buyer to have a lower monthly payment. Points must be "amortized" or averaged over a period of time to determine how long it takes to pay them off. Homeowners use this information to determine how long they must stay in the house before selling it to make using the points worthwhile.
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