Mortgage
Definition: A loan used to purchase real estate, where the property serves as collateral.
How Mortgages Work: 1. You borrow money to buy a home 2. You make monthly payments (principal + interest) 3. The lender holds a lien on the property 4. When paid off, you own the home free and clear
Types of Mortgages:
Fixed-Rate:
- Interest rate stays the same
- Predictable monthly payments
- Common terms: 15 or 30 years
Adjustable-Rate (ARM):
- Rate changes periodically
- Usually lower initial rate
- Can increase significantly over time
Government-Backed:
- FHA loans (lower down payment)
- VA loans (for veterans)
- USDA loans (rural areas)
Monthly Payment Components (PITI):
- Principal: Loan balance reduction
- Interest: Cost of borrowing
- Taxes: Property taxes (often escrowed)
- Insurance: Homeowner's insurance (often escrowed)
Key Terms:
- Down payment: Upfront cash (typically 3-20%)
- PMI: Required if down payment is under 20%
- Closing costs: Fees to complete the purchase
- Amortization: How payments are applied over time
Related Terms
Escrow
A third-party account that holds funds during a real estate transaction or for ongoing property expenses.
Amortization
The process of paying off a loan through regular payments that cover both principal and interest.
Closing Costs
Fees and expenses paid when completing a real estate transaction, beyond the property price.
Document Your Belongings with Dib
The AI-powered home management app we built. It remembers everything so you don't have to.
- AI-powered inventory scanning
- Automatic maintenance reminders
- Document storage & extraction
- Vehicle tracking
- Emergency preparedness