What Is A Mortgage - 1-Minute Explanations

What Is A Mortgage?

Video Transcript

There are two ways to buy a house. You can use cash from your bank account, or money borrowed from a mortgage lender.

Most home buyers choose to borrow.

When a person borrows money to buy a house, the loan is called a mortgage.

Mortgages have three components:

  • The mortgage size, which is the amount you borrow
  • The mortgage rate, which is the interest rate at which you borrow
  • The mortgage term, which is the number of years over which the loan must be repaid

When you buy a house and use a mortgage, all three of those pieces are up to you.

You decide how much to borrow; what rate you want; and, how long you’ll have to pay it all back.

You also get to choose whether the interest rate for your mortgage stays the same for as long as you have the loan, or whether your rate can fluctuate with the economy,

Respectively, these loans are known as fixed-rate mortgages and adjustable-rate mortgages or — ARMs.

Whatever your choices, remember this: there are no mortgage loan options that are inherently bad, but there may be some which are inherently bad for you, based on your goals and household budget.

Dan Green

Dan Green is a former mortgage loan officer and an industry expert. He's appeared on NPR and CNBC, and in The Wall Street Journal, Bloomberg, and dozens of local newspapers. Dan has helped millions of first-time home buyers get educated on mortgages, real estate, and personal finance. Have mortgage questions? Ask Dan in the chat.

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