What Is A Mortgage?


First of all, in order to understand how a mortgage works, you need to know what a mortgage is and in very simple terms, a mortgage is just the way that a bank lends you money with a promise of repayment, . That’s really what it is on a very simple terms but I want to dive into some of the details of really what a mortgages and why we even have mortgages. As you’re probably aware a lot, of you watching this right now and I’m going to speak specifically to the younger generation here for just a moment. You may not have a mortgage yet, maybe you’ve never had one before. If you’re not into adulthood yet or if you’re in your early 20’s maybe, you haven’t quite gotten to that to that spot where you’re ready to buy a home so maybe you’ve never gotten a mortgage before. Why would a bank be willing to lend you money? Well banks are in the business of making money, right.

So when a bank lends you money or when they give you a mortgage, you sign papers and you promise to pay them back but you’re not just going to pay them back the amount that they lent you, you’re actually going to pay them back interest. Now interest is that money, it’s the cost of the money that you are borrowing from the bank, right. Interest rates vary depending on the loan that you’re getting, the type of loan that you’re getting which I’ll talk a little bit about here as well but that interest has to be paid over time so the mortgage lender, the bank, they say, let’s just do an example here, they say here’s $100,000 because you don’t have $100,000 cash to go out and buy a property on your own, right. They say here’s $100,000 that we will lend you, in order for us to lend this to you, they often will require you to put some of your own skin in the game, right.

They want you put a little bit of down payment down, they call it a down payment and so you take a certain percentage of money to put down on the property on a primary residence or home that you’re purchasing for you to live in yourself that’s probably going to be somewhere between 3% and 5% somewhere right in that range is very typical, sometimes you can get into different government fund programs where you can do a 0% down program or where they basically say, hey, we’ll take that risk on ourselves or we’ll offer up some of that as a government institution to allow you to get into at home easier so some of those things are available at times but you’re typically going to put in 3% to 5% as a down payment.

The bank then says, , you’re a worthy person to let lend to. If you’re willing to put three to five percent down, we will put the other 95% to 97% into this property and you can then purchase it, right? So the bank then says, they then pay the person that’s selling the home that, you know, that $97,000, you put your $3,000 in, the seller has their money, they now have sold the home to you but in that scenario, the bank is either they own the title or they have the title to the home. The title is the ownership document, right, basically says you own this property so although it says you own it the bank, they are holding on to that title for a period of time until you pay that debt off so your goal is over the life of the loan, to pay off that loan, right.


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