Mortgage
A mortgage is a debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. aking out a mortgage is one of the most substantial financial decisions most of us will ever make. So, it’s essential to understand what you’re signing on for when you borrow money to buy a house. A mortgage is a loan from a bank or other financial institution that helps a borrower purchase a home. The collateral for the mortgage is the home itself, meaning that if the borrower doesn’t make monthly payments to the lender and defaults on the loan, the bank can sell the home and recoup its money. Who Uses a Mortgage?
Individuals and businesses use mortgages to make large real estate purchases without paying the entire purchase price upfront. Over many years, the borrower repays the loan, plus interest, until she or he owns the property free and clear. Mortgages are also known as "liens against property" or "claims on property." If the borrower stops paying the mortgage, the lender can foreclose. They are a form of incorporeal right. In a residential mortgage, a homebuyer pledges their house to the bank or other type of lender, which has a claim on the house should the homebuyer default on paying the mortgage. In the case of a foreclosure, the lender may evict the home's tenants and sell the house, using the income from the sale to clear the mortgage debt. Types of Mortgages
Mortgages come in many forms. The most popular mortgages are a 30-year fixed and a 15-year fixed. Some mortgages can be as short as five years; some can be 40 years or longer. Stretching payments over more years reduce the monthly payment but increase the amount of interest to pay.

With a fixed-rate mortgage, the borrower pays the same interest rate for the life of the loan. The monthly principal and interest payments never change from the first mortgage payment to the last. If market interest rates rise, the borrower’s payment does not change. If interest rates drop significantly, the borrower may be able to secure that lower rate by refinancing the mortgage. A fixed-rate mortgage is also called a “traditional" mortgage. 

With an adjustable-rate mortgage (ARM), the interest rate is fixed for an initial term then fluctuates with market interest rates. The initial interest rate is often a below-market rate, which can make a mortgage more affordable in the short term but possibly less affordable long-term. If interest rates increase later, the borrower may not be able to afford the higher monthly payments. Interest rates could also decrease, making an ARM less expensive. In either case, the monthly payments are unpredictable after the initial term. Other less common types of mortgages, such as interest-only mortgages and payment-option ARMs, can involve complex repayment schedules and are best used by sophisticated borrowers. Many homeowners got into financial trouble with these types of mortgages during the housing bubble of the early 2000s.
Most mortgages used to buy a home are forward mortgages. A reverse mortgage is for homeowners 62 or older who look to convert part of the equity in their homes into cash. These homeowners borrow against the value of their home and receive the money as a lump sum, fixed monthly payment, or line of credit. The entire loan balance becomes due and payable when the borrower dies, moves away permanently, or sells the home. The Right Mortgage
Among major banks offering mortgage loans are Wells Fargo, JPMorgan Chase, and Bank of America. Banks used to be virtually the only source of mortgages. Today a burgeoning share of the lender market includes non-banks such as Quicken Loans, loanDepot, SoFi, Caliber Home Loans, and United Wholesale Mortgage.
When shopping for a mortgage, it is beneficial to use a mortgage calculator to get an idea of the monthly payments. These tools can also help calculate the total cost of interest over the life of the mortgage, to give you a clearer idea of what a property will really cost.
The mortgage servicer may also set up an escrow account, aka an impound account, to pay certain property-related expenses. The money that goes into the account comes from a portion of the monthly mortgage payment.
Lenders sometimes require that escrow be used to pay taxes and insurance, according to the U.S. Consumer Financial Protection Bureau.
The Bottom Line
Mortgages, perhaps more than any other loans, come with a lot of variables, starting with what must be repaid and when. Homebuyers should work with a mortgage expert to get the best deal on what may be one of the biggest investments of their lives.

What Is a Home Mortgage?
A home mortgage is a loan given by a bank, mortgage company, or other financial institution for the purchase of a residence either a primary residence, a secondary residence, or an investment residence in contrast to a piece of commercial or industrial property. In a home mortgage, the owner of the property (the borrower) transfers the title to the lender on the condition that the title will be transferred back to the owner once the final loan payment has been made and other terms of the mortgage have been met. A home mortgage is one of the most common forms of debt, and it is also one of the most recommended. Because they are secured debt—there is an asset (the residence) acts as backing for the loan—mortgages come with lower interest rates than almost any other kind of loan an individual consumer can find. 
How a Home Mortgage Works
Home mortgages allow a much broader group of citizens the chance to own real estate, as the entire purchase price of the house doesn't have to be provided upfront. But because the lender actually holds the title for as long as the mortgage is in effect, it has the right to foreclose one the home (seize it from the homeowner, and sell it on the open market) if the borrower can't make the payments.

A home mortgage will have either a fixed or floating interest rate, which is paid monthly along with a contribution to the principal loan amount. In a fixed-rate mortgage, the interest rate and the periodic payment are generally the same each period. In an adjustable-rate home
mortgage, the interest rate and periodic payment vary. Interest rates on adjustable-rate home mortgages are generally lower than fixed-rate home mortgages because the borrower bears the risk of an increase in interest rates.

Either way, the mortgage works the same way: As the homeowner pays down the principal over time, the interest is calculated on a smaller base so that future mortgage payments apply more towards principal reduction as opposed to just paying the interest charges.

 In a mortgage transaction, the lender is known as the mortgagee and the borrower is known as the mortgagor.
Getting a Home Mortgage
To obtain a mortgage, the person seeking the loan must submit an application and information about his or her financial history to a lender, which is done to demonstrate that the borrower is capable of repaying the loan. Sometimes, borrowers look to a mortgage broker for help in choosing a lender. 

The process has several steps. First, borrowers might seek to be pre-qualified. Getting pre-qualified involves supplying a bank or lender with your overall financial picture, including your debt, income, and assets. The lender reviews everything and gives you an estimate of how much you can expect to borrow. Pre-qualification can be done over the phone or online, and there’s usually no cost involved.

Getting preapproved is the next step. You must complete an official mortgage application to be preapproved, and you must supply the lender with all the necessary documentation to perform an extensive check on your financial background and current credit rating. You’ll receive a conditional commitment in writing for an exact loan amount, allowing you to look for a home at or below that price level. After you've found a residence you want, the final step in the process is a loan commitment, which is only issued by a bank when it has approved you as the borrower, as well as the home in question—meaning that the property is appraised at or above the sales price. When the borrower and the lender have agreed on the terms of the home mortgage, the lender puts a lien on the home as collateral for the loan. This lien gives the lender the right to take possession of the house if the borrower defaults on the repayments.