What is a mortgage?

Discussion in 'Money & Investing' started by Merc, Sep 21, 2008.

  1. Merc

    Merc Certified Shitlord V.I.P. Lifetime

    Yes, I know I could have googled this, but I want to ask here (and for the sake of people that do not understand it either) what exactly is a mortgage and what does it entail?

  2. R1pperZ

    R1pperZ Registered Member

    It's when you take the estimated value of your house and cash that into a loan from the bank. You then pay off that loan with a low interest rate since if you don't pay, the bank will foreclose on your home.

    Hence why people loose their home to a foreclosure.
  3. Merc

    Merc Certified Shitlord V.I.P. Lifetime

    Hmm . . so it's basically a loan that's worth the value of your house and the penalty of not paying it back is foreclosure, did I get that right?

    Is that all it is?
  4. R1pperZ

    R1pperZ Registered Member

    That's all it is really. Of course you have to own the home first.
  5. Merc

    Merc Certified Shitlord V.I.P. Lifetime


    It was just a question I've never really asked about something I should probably know. Thanks.
  6. Chataholic

    Chataholic New Member

  7. pro2A

    pro2A Hell, It's about time!

    Lets say your home is valued at 100k. You get the loan for 100k plus 7% adjustable rate interest on the loan for 30 years... doing the math your total payment would be $107,000 . Monthly for 30 years would be $297 a month. Now if you have an adjustable rate mortgage and the banks jack up that interest rate by double, this is why people always end up foreclosing because they can't afford that extra payment. This is why it is good to get a fixed rate mortgage, that way the bank can't screw you around with payments.
  8. Bananas

    Bananas Endangered Species

    Not necessarily worth the value of your home. Only at the time of purchase do the two prices match. Monetary value and property value fluxuate. The rate of inflation may not match any booms or busts within the housing market itself.

    This problem has become apparent in the recent financial crisis where people have taken out mortgages only to find they owe more than the property is worth.

    If for example someone purchases a house for $200k, (ignoring deposits and interest rates) they get a mortgage for $200k. The house market then takes a tumble and 12 months down the line the property is only worth $150k, they are still paying off $200k! If for any reason they can not keep up repayment, they can not sell the property as they can not recoup the mortgage. Of course the opposite is also true, house prices rise! The late 90s and early 00s saw house prices go up in leaps and bounds above the rate of inflation, people who had $200k mortgages found themselves in half million dollar houses.

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