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What is a Mortgage?

May 29, 2008  |  Difficulty: Easy

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Getting down to the basics

Many might ask ‘what is a mortgage’? Well, in literal terms it is a dead pledge. The term “mortgage” is derived from the French word “mort” or “dead” and from the Old English word “gage” or pledge. However, if you handle it correctly, there will be nothing grim about your mortgage.

But mortgage did have a grim beginning. Sir Edward Coke lived during the 17th century. In his day, the “mortgagor”, or the borrower, was looked upon with doubt, as no one really knew if he would pay back his debt. When, or if, the mortgagor did not pay the debt, the property was immediately taken away. It was taken away so quickly that the land was “dead”, or taken away, from the borrower- almost as if he never owned it at all.

Today, mortgage is used to describe a loan that is borrowed so that the borrower can purchase personal property. Let’s not make it so bleak, because it can be a great start to a new beginning. In fact, a home mortgage is the most popular kind of mortgage, because only a select few are in the position to pay all of the money up-front to purchase a house.

Home mortgage is a little different from other mortgages. It is standard for home mortgage to be renegotiated before it is fully paid off. The “life” of a home mortgage, or estimated time it will take to pay in full, is about 20-30 years.

Interest rates are an important factor in your home mortgage. Your interest rate has a “term”. The term lays out the payment schedule, with added conditions, that you have consented to abide by over a period of time. During this set time you are consenting to:
  • Pay interest on your home mortgage (the interest rate can be locked-in or ballooning)
  • Adhere to rules concerning extra payments (these payments usually involve a percentage of the initial home mortgage that you can put down yearly)
  • Abide by regulations that determine the increase of monthly mortgage payments
  • Follow the regulations that determine your power to re-negotiate the interest rate on your home mortgage (whether or not you have a “open” or “closed” mortgage will determine your power in this situation)
  • Agree to given penalties when you re-negotiate the home mortgage terms before the time of the contract has terminated.
The contract normally spans from 6 months to 10 years. However, a great number of mortgage institutions will only enter into a contract that is 5 years or less.

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