Mortgage explained

a loan used to purchase real estate


What does mortgage mean?

A mortgage is a long-term loan that enables borrowers to purchase real estate. It can be difficult to pay the full amount for a property upfront, so banks enable customers to pay for it in monthly instalments, plus interest. These agreements often anywhere from 15 to 30 years.

How mortgages work

Mortgages are a type of secured loan. This means that the bank can seize a person’s property if they are failing to keep up with the repayments.

Interest is normally calculated in one of two ways. Fixed-rate mortgages mean that the level of interest a homeowner pays is frozen for the duration of the loan. This can be beneficial at times when interest rates in the wider economy are rising, as borrowers won’t see sudden increases in their monthly repayments. The downside is they could end up trapped in an agreement with interest rates that are higher than what’s available elsewhere on the market.

Adjustable-rate mortgages (also known as variable or tracker mortgages) have an interest rate that rises and falls in line with the market rate. This can make repayments rather unpredictable in the long-term, so it’s important for borrowers to factor in potential interest rate rises when they are considering whether a mortgage is affordable.

Getting a mortgage

Usually, borrowers will need to contribute a deposit towards a mortgage – an upfront contribution towards the cost of the property. This requirement can vary wildly among lenders. If Sue puts down a 10% deposit for her $320,000 apartment - $32,000 – this will mean that her mortgage has a loan-to-value ratio of 90%.

Given the fact that there are so many deals out there, and it’s a major financial commitment, it is important to shop around. Mortgage brokers are qualified specialists who have an obligation to ensure that borrowers find a loan that’s best-suited to their financial requirements.

The material provided on this website is for information purposes only and should not be regarded as investment research or investment advice. Any opinion that may be provided on this page is a subjective point of view of the author and does not constitute a recommendation by Currency Com Bel LLC or its partners. We do not make any endorsements or warranty on the accuracy or completeness of the information that is provided on this page. By relying on the information on this page, you acknowledge that you are acting knowingly and independently and that you accept all the risks involved.
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