What is a mortgage?

Basically, a mortgage is a loan for either residential or commercial property. Most loans require collateral (something the lender can take if you don’t pay the loan back), but in the case of a mortgage, the collateral is the property itself. If you fail to repay the loan on the property, then the loan will go into foreclosure. This means that the lender will take the home and you will be forced to vacate it. Once the foreclosure process is completed, the lender can then sell the property to another buyer.

There are two types of mortgages: fixed or adjustable rate. This refers to the interest rate attached to the loan. If you opt for a fixed-rate loan, then that means the interest rate will remain the same as you repay the loan. The advantage of this is that you will always know what your rate is, but the disadvantage could be that you are locked in at a high rate depending on your credit score at the time of the loan. An adjustable-rate loan means that the interest rate can change throughout the life of the loan. This can be risky as it means that the interest could go much higher, but it can also mean that sometimes the rate can be lower. Basically, a fixed-rate loan means you will pay the same amount until the loan is repaid and an adjustable-rate loan means that your payment could be a bit higher or lower at times.

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