Mortgage
BeginnerA mortgage is a loan used to buy property, in which the property itself serves as security for the lender. If the borrower does not repay, the lender can take the property and sell it.
Few people can buy a home outright, so they pay a deposit and borrow the rest through a mortgage. The loan is usually repaid over a long period, often 20 to 30 years, through regular monthly payments covering interest and part of the principal.
For example, a buyer purchasing a home for 300,000 with a deposit of 60,000 borrows 240,000. At an interest rate of 5% over 25 years, the monthly payment would be about 1,403.
Mortgages come in different types. Fixed-rate mortgages keep the same interest rate for an agreed period, giving predictable payments. Variable or adjustable-rate mortgages change with market rates, so payments can rise or fall. Some mortgages are interest-only for a period, meaning the borrower pays only interest and the principal remains unchanged.
Because the home is security, mortgages usually carry lower interest rates than unsecured loans. But missing payments can ultimately lead to the lender repossessing the home. Lenders assess income, existing debts, credit history and the property's value before approving a mortgage.
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