The basic contract
A mortgage is a loan secured by real estate. You repay principal plus interest over an agreed term, often 15 to 30 years. If you default, the lender can enforce its security interest through foreclosure processes defined by law.
Until the loan is paid off, the lender holds a lien on the property. You still own the home and build equity as you pay down balance and as value changes.
Repayments and amortization
Regular repayments cover interest due plus a slice of principal. Early in the loan, interest takes a larger share of each payment on typical amortizing schedules. Extra repayments cut total interest and shorten the term.
Interest-only periods delay principal paydown and increase later payments when principal kicks in. Understand when principal repayments start and how much they will be.
Rates, fees, and features
The note rate sets interest accrual. Fees and points change the effective cost, which comparison rates try to summarize. Offset accounts reduce interest by linking savings to the loan balance.
Redraw lets you take back extra principal you paid. Fixed rates trade flexibility for certainty. Choose features you will actually use.
Life of the loan
Application, approval, settlement, and servicing are distinct stages. After settlement, you make payments, review annual statements, and may refinance or sell. Portability clauses can let you move the loan to a new property in some markets.
Keep insurance, taxes, and maintenance current. They protect your equity and satisfy lender requirements on escrow accounts where they apply.
FAQs
What is the difference between a mortgage and a note?
People often say mortgage for the whole loan. Legally, the note is your promise to repay, and the mortgage or deed of trust secures it with the property.
Can I pay off a mortgage early?
Most variable loans allow extra payments freely. Fixed loans may cap extras or charge break fees. Read your contract before you make large lump sums.
What happens if I sell before the loan ends?
Sale proceeds pay off the remaining balance at settlement. Any surplus goes to you. If sale price does not cover the loan, you must cover the gap unless a short sale is approved.
General information only. Not financial, tax, insurance or credit advice.