MENU
EDU Articles

Learn about investing, trading, retirement, banking, personal finance and more.

Ad is loading...
Help CenterFree ProductsPremium Products
IntroductionMarket AbbreviationsStock Market StatisticsThinking about Your Financial FutureSearch for AdvisorsFinancial CalculatorsFinancial MediaFederal Agencies and Programs
Investment PortfoliosModern Portfolio TheoriesInvestment StrategyPractical Portfolio Management InfoDiversificationRatingsActivities AbroadTrading Markets
Investment Terminology and InstrumentsBasicsInvestment TerminologyTradingBondsMutual FundsExchange Traded Funds (ETF)StocksAnnuities
Technical Analysis and TradingAnalysis BasicsTechnical IndicatorsTrading ModelsPatternsTrading OptionsTrading ForexTrading CommoditiesSpeculative Investments
Cryptocurrencies and BlockchainBlockchainBitcoinEthereumLitecoinRippleTaxes and Regulation
RetirementSocial Security BenefitsLong-Term Care InsuranceGeneral Retirement InfoHealth InsuranceMedicare and MedicaidLife InsuranceWills and Trusts
Retirement Accounts401(k) and 403(b) PlansIndividual Retirement Accounts (IRA)SEP and SIMPLE IRAsKeogh PlansMoney Purchase/Profit Sharing PlansSelf-Employed 401(k)s and 457sPension Plan RulesCash-Balance PlansThrift Savings Plans and 529 Plans and ESA
Personal FinancePersonal BankingPersonal DebtHome RelatedTax FormsSmall BusinessIncomeInvestmentsIRS Rules and PublicationsPersonal LifeMortgage
Corporate BasicsBasicsCorporate StructureCorporate FundamentalsCorporate DebtRisksEconomicsCorporate AccountingDividendsEarnings

What is a Home Mortgage?

A home mortgage is a long-term loan for the purchase of a home, secured by the value of the home itself.

Banks as well as mortgage companies make mortgage loans to consumers and charge an interest rate for the duration of the loan that may be fixed or variable. Mortgage loans generally last for between 15 to 30 years, and they are constructed so that paying off a home can fit into a person’s budget while a bank or lending institution collects interest on each payment.

Payments may also include the cost of private mortgage insurance (PMI), which is required if a borrower does not pay at least 20% of the value of the home up front as a down payment, and it protects the lending institution from the risk of non-payment or foreclosure. PMI is not required after a borrower has paid off 80% of the principal amount.

The portion of each payment that goes toward paying down the principal amount of the loan builds up the homeowner’s equity in the house. Home equity is an asset on the individual’s balance sheet, and can be used as collateral for loans.

The interest rate due on mortgages can be fixed at a certain rate from the beginning or may fluctuate according to the interest rate environment, or a combination of the two. People can be approved to refinance their loans with a new interest rate and/or a different length of term.

The mortgage lending industry has a large securities market attached to it, as cash flows from mortgage loans are purchased by entities such as Fannie Mae and Freddie Mac and are sold off as bond-like instruments called collateralized mortgage obligations (CMOs), which were part of the financial meltdown of 2008.

What are Mortgage-Backed Securities?

Ad is loading...