What Is A Mortgage Loan?
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 borrowed
- The mortgage rate, which is the interest rate at which money is borrowed
- The mortgage term, which is how many years over which the loan gets repaid
When you buy a house and use a mortgage, you get to choose all three figures. You decide how much to borrow, what rate you want, and how long you’ll have to pay it all back.
You can also choose whether your interest rate gets fixed, or changes to match the growth or decline of the U.S. economy.
Respectively, these loans are known as fixed-rate mortgages and adjustable-rate mortgages (ARM).
How you build your mortgage is up to you. There are no bad choices. However, there may be choices that are bad for you based on your goals and household budget.
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