Home Loan
What Is a Home Loan?
A home mortgage is a loan given by a bank,Mortgage Bank, or other financial Instition for the purchase of a residence—a primary residence, a secondary residence, or an investment residence—in contrast to a piece of commercial or industrial property. In a home mortgage, the owner of the property (the borrower) transfers the tittle to the Lender on the condition that the title will be transferred back to the owner once the final loan payment has been made and other terms of the mortgage have been met.
A home mortgage is one of the most common forms of debt, and it is also one of the most recommended. Because they are secured debt —an asset (the residence) acts as backing for the loan—mortgages come with lower interest rates than almost any other kind of loan that an individual consumer can find..
KEY TAKEAWAYS
- A home mortgage is a loan given by a bank, mortgage company, or other financial institution for the purchase of a residence.
- A home mortgage will have either a fixed or floating interest rate, and a life span of anywhere from three to 30 years.
- The lender who extends the home mortgage retains the title to the property, which it gives to the borrower when the mortgage is paid off.
A home mortgage will have either a fixed or floating interest rate, which is paid monthly along with a contribution to the principal loan amount. In a fixed rate mortgage, the interest rate and the periodic payment are generally the same each period. In an adjustable rate home mortgage, the interest rate and periodic payment vary. Interest rates on adjustable-rate home mortgages are generally lower than fixed-rate home mortgages because the borrower bears the risk of an increase in interest rates.
Either way, the mortgage works the same way: As the homeowner pays down the principal over time, the interest is calculated on a smaller base so that future mortgage payments apply more toward principal reduction than just paying the interest charges.