Home Mortgage

DEFINITION of 'Home Mortgage'

A loan given by a bank, mortgage company or other financial institution for the purchase of a primary or investment residence. In a home mortgage, the owner of the property (the borrower) transfers the title to the lender on the condition that the title will be transferred back to the owner once the payment has been made and other terms of the mortgage have been met.

A home mortgage will have either a fixed or floating interest rate, which is paid monthly along with a contribution to the principal loan amount. As the homeowner pays down the principal over time, the interest is calculated on a smaller base so that future mortgage payments apply more towards principal reduction as opposed to just paying the interest charges. In order to estimate the total cost of your monthly mortgage payments, it's beneficial to use an online mortgage calculator

BREAKING DOWN 'Home Mortgage'

Home mortgages allow a much broader group of citizens the chance to own real estate, as the entire sum of the house doesn't have to be provided up front. But because the lender actually holds the title for as long as the mortgage is in effect, they have the right to foreclose the home (sell it on the open market) if the borrower can't make the payments.

A home mortgage is one of the most common forms of debt, and it is also one of the most advised. Mortgage loans come with lower interest rates than almost any other kind of debt an individual consumer can find. 

Home mortgages range from 10 to 30 years and the two main types of home mortgage loans are fixed rate and adjustable rate. In a fixed-rate mortgage, the interest rate and the periodic payment are generally the same each period. In an adjustable-rate home mortgage, the interest rate and periodic payment vary. Interest rates on adjustable-rate home mortgages are generally lower than fixed-rate home mortgages because the borrower bears the risk of an increase in interest rates.

To obtain a mortgage, the person seeking the loan must submit an application and information about his or her financial history to a lender, which is done to show the lender that the borrower is capable of repaying the loan. Sometimes, borrowers look to a mortgage broker for help in choosing a lender. When the borrower and the lender agree on the terms of the home mortgage, the lender puts a lien on the home as collateral for the loan. This means that if the borrower defaults on the mortgage, the lender may take possession of the house, which is called foreclosure.