A mortgage is a type of loan that allows you to purchase a home without having to pay all the money up front. The amount you borrow to buy the house, known as the “principal,” is combined with interest and other costs to make up your monthly mortgage payment. This payment also includes the costs associated with owning the home, including property taxes and homeowners insurance.
The loan can be paid in full at the end of a certain time or in parts, often over 10, 15, 20 or 30 years. During this period, the house is used as collateral by the lender for the loan, giving them the right to take possession of the property in the event of nonpayment.
Mortgage markets vary by region and have their own specific characteristics, but they generally share some key features. These include the two main means of setting the cost of a mortgage (fixed at a set interest rate for the term, or variable relative to market interest rates), and how that cost is paid and repaid.
Fixed-rate loans are typically lower than adjustable-rate loans because they have a fixed rate of interest, which helps ensure that you can afford the payments over time. However, you should always consider your credit and debt-to-income ratio before committing to a long-term loan.
When you apply for a mortgage, lenders will run a credit check and may use your debt-to-income ratio to determine whether you can afford the monthly payments. The lender will also provide you with a Loan Estimate, which shows all of the costs involved in getting a loan, including the interest rate and fees.
How much you’ll need to pay each month for your mortgage is based on several factors, including your debt-to-income ratio and your loan-to-value (LTV) ratio. To get the best mortgage rates, shop around for quotes from multiple lenders before making a decision.
Calculating your mortgage payment is easy using our online mortgage calculator. Just enter your information on the left side of the screen and the calculator will auto-populate a payment breakdown on the right. You can toggle between an annual and monthly view to see how your mortgage payment will change over time.
A mortgage is a significant investment in your future. Understanding how to manage it can help you avoid paying unnecessary interest and fees and reduce your overall borrowing costs.
It’s important to choose a low-interest loan, especially in the early years of your mortgage when interest makes up a large portion of your payment. Over the life of your mortgage, you’ll start to pay more principal than interest. This will help you save a lot of money in interest and reduce your overall loan balance, which is an important factor to your wealth profile.
The loan process is a complex one and can be stressful. A good mortgage broker will help you navigate it, as well as safeguard your credit and prepare for closing.