Getting Approved for a Mortgage Loan
Mortgages are one of the most common financial instruments in the world, yet many people don’t quite understand why they aren’t called loans. It’s true that mortgages and loans share many similarities, but there are also some key differences that set them apart. In this article, we’ll explore why mortgages aren’t called loans and how they differ from loans in terms of structure, security, and repayment terms.
What is a Mortgage?
A mortgage is a type of loan that is used to purchase a home. The borrower agrees to pay back the loan over a predetermined period of time, usually in monthly payments. In exchange, the lender provides the borrower with the money to buy the home and holds a lien on the property until the loan is repaid in full.
Why Isn’t a Mortgage Called a Loan?
The term “mortgage” comes from the Latin word mortgagium, which means “dead pledge.” Unlike a loan, which is typically unsecured, a mortgage is a secured loan, meaning that the lender holds the title to the property as collateral until the loan is paid off. This means that if the borrower fails to make their payments, the lender can take possession of the home and sell it to recoup their losses.
Another key difference between mortgages and loans is the way the interest is calculated. With a loan, the interest rate is typically fixed, meaning that the borrower will pay the same amount of interest each month until the loan is paid off. With a mortgage, however, the interest rate is often adjustable, meaning that the interest rate can fluctuate over the life of the loan. This means that the borrower’s monthly payments may increase or decrease depending on the market.
Finally, mortgages typically have longer repayment terms than loans. Whereas loans are usually paid off within a few years, mortgages usually span 15 to 30 years. This allows borrowers to spread out their payments over a longer period of time, making it easier to budget for a home purchase.
Key Points
• Mortgages are secured loans, meaning that the lender holds the title to the property as collateral until the loan is paid off.
• Loans typically have fixed interest rates, while mortgages often have adjustable interest rates that can fluctuate over the life of the loan.
• Mortgages typically have longer repayment terms than loans, usually spanning 15 to 30 years.
People Also Ask
Q: What is the difference between a mortgage and a loan?
A: The main difference between a mortgage and a loan is that a mortgage is a secured loan, meaning that the lender holds the title to the property as collateral until the loan is paid off. Loans typically have fixed interest rates, while mortgages often have adjustable interest rates that can fluctuate over the life of the loan. Mortgages also typically have longer repayment terms than loans, usually spanning 15 to 30 years.
Q: How is a mortgage different than a loan?
A: A mortgage is a type of loan that is used to purchase a home. The borrower agrees to pay back the loan over a predetermined period of time, usually in monthly payments. In exchange, the lender provides the borrower with the money to buy the home and holds a lien on the property until the loan is repaid in full. Unlike a loan, which is typically unsecured, a mortgage is a secured loan, meaning that the lender holds the title to the property as collateral until the loan is paid off.
Q: What is a mortgage?
A: A mortgage is a type of loan that is used to purchase a home. The borrower agrees to pay back the loan over a predetermined period of time, usually in monthly payments. In exchange, the lender provides the borrower with the money to buy the home and holds a lien on the property until the loan is repaid in full.
Why isn’t a mortgage called a loan? – 3 Tips
Crystal Avery-Morris from Commerce Bank walks home buyers through the steps of home mortgage loan approval.
*Mortgage Loan Basics
*Who can get a mortgage loan?
*How much can you afford?
*How much will a bank loan you?
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