Mortgages

Mortgages are loans secured by real property that enable individuals and businesses to purchase homes or other real estate. The lender provides a sum of money in exchange for a promissory note and a lien on the property, which serves as collateral. If the borrower fails to repay, the lender may pursue foreclosure to recover the loan balance.

A standard mortgage requires a down payment, typically a percentage of the purchase price, and periodic payments over a set term. Each payment consists of principal and interest, with a portion applied to reduce principal over time in a process called amortization. The interest rate can be fixed for the life of the loan or vary with market rates in an adjustable-rate mortgage (ARM). Longer terms reduce monthly payments but increase total interest. Lenders assess creditworthiness, income, and debt levels, and may require private mortgage insurance (PMI) if the down payment is small. The loan-to-value ratio (LTV) reflects the loan amount relative to the property value and influences rate and whether PMI is required.

Common mortgage types include fixed-rate mortgages, adjustable-rate mortgages, interest-only loans, balloon loans, and reverse mortgages for seniors. Government-backed programs exist through agencies such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA), as well as conventional loans that may be sold to Fannie Mae or Freddie Mac. The closing process involves underwriting, appraisal, title search, and settlement costs.

Borrowers may refinance to obtain a lower rate, change the term, or access equity. Default can lead to foreclosure, with consequences for credit and future borrowing.