2.1 Mortgage Basics

To begin with, lets start with a question: What is a mortgage?

The official definition is that a mortgage is a home loan secured by real property, commonly referred to as real estate. It is also a contract that includes the rights, and obligations, of both the lender and the borrower. The word ‘mortgage’ itself comes from a French term meaning "Death Contract", but don’t let that scare you off!

A mortgage is a special loan that allows you to buy a property. Mortgages are often very large and have conditions which say when you have to make payments, and how much you have to pay. A mortgage will also come with a length of time, which is how long it will take you to pay it off if you make your payments. Finally, all mortgages are secured, or guaranteed, by the property you are buying. This means if something goes wrong and you can't make payments (default on the mortgage), the lender can start the foreclosure process and you could lose the property.

Finally, the size of the mortgage depends on how much money you need to borrow, after subtracting your down payment. The remaining total is known as the principal. As you make payments, your principal gets smaller. But, you also need to pay off your mortgage interest as well!