Frequently Asked Questions
What is a Mortgage?
A home loan is likely the largest debt you'll ever take on. A mortgage is a loan to finance the purchase of your home, the home being the collateral for the loan. You will sign a contract that promises to pay the debt back, typically over 30 years.
What is Principal?
The principal is the amount of money you borrowed to buy your home. Before the principal is financed, a down payment is typically required to reduce the amount of money that will be financed.
What is Interest?
Interest is what the lender charges you to use their money.
Principal and interest comprise the bulk of your monthly payments in a process called amortization, which reduces your debt over a fixed period of time. With amortization, your monthly payments are largely interest during the early years and principal in later years.
In addition to your principal and interest, your mortgage payment could include money that's deposited in an escrow or trust account to pay certain taxes and insurance.
What are Property Taxes?
Property taxes are what your county levies (charges) based on a percentage of the value of your home. The tax is generally used to help finance the cost of running your community, for example, to build schools, roads, infrastructure and other needs. You must pay property taxes even if you don't need an escrow account and even after your mortgage is paid off.
What is Homeowner’s Insurance?
Mortgage Lenders won't let you borrow money for your home purchase if you don't obtain adequate homeowner’s insurance, which covers your home and your personal property against losses from fire, theft, bad weather, and other causes.
What is Mortgage Insurance?
If you put less than 20 percent down on your home purchase, most lenders will also charge you private mortgage insurance (PMI) premiums. The coverage doesn't protect you, it protects the lender from you defaulting on the mortgage. Without the coverage, many buyers could not otherwise afford to buy a home.