What is a Mortgage
There are a variety of unique mortgages, but here we will define what a mortgage is.
What is a Mortgage:

A mortgage is a long-term loan, 15 to 30 years, that you arrange through a bank or other financial institution used to purchase a home or property. The home and/or property serve as collateral for the loan and in any case that payment is not made on the home the financial institution will take ownership of the property.

A mortgage for the purchas of real estate is most likely the largest debt you will assume. Monthly payments over a long period of time, most often 15 to 30 years, otherwise the cost of ownership would be unattainable for most people.


Your Monthly Payment: Where does it all go?
A typical monthly mortgage payment includes:

Principal
Interest
Real estate Taxes
Property Insurance and, often, private mortgage insurance, known as PMI.
PMI gives the mortgage lender protection if the home buyer should default on the loan. Mortgage companies charge insurance if the down payment is less than 20 percent of the sale price.

Tip:
PMI usually can be eliminated once the principal balance of the mortgage reaches 80 percent of the sale price or appraised value, which is known as the loan-to-value (LTV) ratio. When you reach the 20% level check to make sure that your PMI is removed. Doing this can reduce your monthly payments or allow for additional funds to pay down your loan.

The process of paying the principal takes many years because mortgages are based on a repayment plan called amortization. During the early years of a mortgage loan, the home owner pays a most of their monthly payment to cover the interest on the loan. However, each month a growing amount of funds are apply to your principal, which over time works to pay off your home laon. During the final years of the loan, the payments will be applied primarily to the remaining principal.

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