Mortgage
Key Highlights
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A mortgage is a loan granted by a lender to a borrower to finance the purchase of a property.
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There are three main types of mortgages available to potential homeowners: Fixed-Rate Mortgages, Adjustable-Rate Mortgages, and Reverse Mortgages.
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Loans offer high interest rates, while interest rates are lower in mortgage loans.
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Mortgages require more extensive documentation and are secured by property (e.g., car, house).
What is Mortgage?
A mortgage is a loan granted by a lender to a borrower to finance the purchase of a property. Mortgage loans are often used to cover the cost of buying large-ticket items such as cars or real estate. Mortgages come with an interest rate that can vary depending on the borrower's credit score and financial standing.
Types of Mortages
There are three main types of mortgages available to potential home owners:
1. Fixed-Rate Mortgages: Offer stability as they feature an interest rate that remains consistent throughout the life of the loan, providing borrowers with predictable monthly payments.
2. Adjustable-Rate Mortgages: ARM feature an interest rate that periodically changes in response to market conditions, potentially leading to lower payments for the borrower over the short term but larger payments in later years.
3. Reverse Mortgages: Allow senior homeowners to access their home's equity with no repayment due on the loan until after the homeowner leaves the property or passes away. These mortgages provide a beneficial option for older homeowners who have limited income or have experienced drastic decreases in their retirement savings due to economic uncertainty.
Mortgage vs loan
| Element | Loan | Mortgage Loan |
|---|---|---|
| Purpose | Typically for short-term needs | Primarily for purchasing property |
| Interest Rates | Loans offer High Interest rate | Interest rate is Low in mortgage loans |
| Paperwork | Involves less paperwork | Requires more extensive documentation |
| Financing Type | Often used as bridge financing | Long-term financing |
| Term Length | Shorter duration | Longer duration |
| Collateral | Generally unsecured | Secured by property (e.g., car, house) |
