By definition, a mortgage is a specific type of loan for the purchase of real property which is secured by a lien on said property. Should the borrower fail to repay the amount of the mortgage, the lender has the right to take possession of the property. Most homeowners today own their homes under a mortgage agreement. It is not as common for a new homebuyer to pay for a property in cash. While loans of any sort typically have a negative connotation associated with them and borrowers seek to pay them off as quickly as possible, a mortgage can be a beneficial loan to have for a few reasons.
Having a mortgage certainly does not come without its risks. The economy will undoubtedly decline one or more times during the lifetime of a mortgage. Job loss and disability are also worth considering as potential risks. However, there are several reasons why having a mortgage makes sense and would be a benefit to the borrower. Having a mortgage would free up capital, meaning there is room to deal with maintenance, insurance, property taxes, and other expenses. Another reason a mortgage is beneficial is that a working capital allows the borrower to have a cash flow rather than having all capital tied up in the property. There is also an opportunity cost when a person sinks six figures in cash into paying off their mortgage early. By giving up this large amount of cash, this person must consider the opportunity cost of not being able to do something with that money that might have been more profitable. A mortgage calculator is a helpful tool to consider.
A mortgage is quite simple and can be easily understood when using a mortgage calculator. Included in the payment is the amount needed for principal, interest, taxes, and insurance. The principal is the amount a person borrowed from the lender. Part of each monthly mortgage amount is paying down the principal. The interest is the part of the payment that will go toward the interest being accrued. Taxes are required property tax payments a person must pay to the local government. Depending on the down payment made and mortgage type, a person will either pay for homeowners’ insurance or mortgage insurance. Homeowners’ insurance protects the borrower from covered incidents and mortgage insurance protects the lender should the borrower default on the loan. A mortgage is likely the largest and longest-term loan a person will ever need. The more a person understands a mortgage, the better off he or she will be. Check out the mortgage calculator below, to assist with your home-buying process!
At the Pickard Real Estate Group our primary goal is to develop lifelong relationships built on honesty, integrity and service. As your real estate consultants we have your best interest in mind and understand that every transaction is unique. With extensive real estate experience and knowledge, you can trust us to handle all of your real estate needs.