A mortgage is a form of secured loan that allows an individual to purchase a piece of property (usually a home) with a lender's money, then pay back the amount financed in addition to applicable interest over an extended period of time.
How Does a Mortgage Work?
When you take out a mortgage, you use the property you purchase as collateral against the amount of money you borrow. If you fail to pay back the mortgaged amount, the lender can take the property and sell it to recover its costs.
A mortgage involves two types of money: principal and interest. The principal is the amount of money the lender extends to help you purchase the property, while interest is the money charged by the lender for its services and is expressed in a percent.
The average interest rates for mortgages change on a regular basis. As of May 2015, average rates range from 3.04 to 4.13 percent based on the terms of the loan, according to Bankrate.
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How Much Can a Person Mortgage?
Lenders examine an applicant's income, credit rating, and other factors to determine the amount he or she is qualified to mortgage. Additionally, banks usually require a borrower to start with a down payment (typically 20 percent).
Many borrowers choose to obtain pre-qualification. During this process, the lender tells them how much they are willing to lay out for the mortgage so the borrower has a number in mind while house hunting.
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