Everything you need to know about mortgages, from the fundamentals to advanced strategies.
How Mortgages Work
When you take out a mortgage, you're borrowing money from a lender to purchase a home. The home serves as collateral, meaning if you fail to make payments, the lender can foreclose and take possession of the property.
Mortgages typically consist of four main components, often abbreviated as PITI: Principal, Interest, Taxes, and Insurance.
Types of Mortgages
- Fixed-Rate Mortgages - Most common type with stable payments
- Adjustable-Rate Mortgages (ARMs) - Lower initial rates that adjust over time
- FHA Loans - Government-backed loans with lower down payments
- VA Loans - For eligible veterans with no down payment required
Understanding Amortization
Amortization is the process of paying off your mortgage through regular payments over time. Each payment is divided between principal and interest, but the proportion changes over the life of the loan.
Strategies to Pay Off Your Mortgage Faster
- Make extra principal payments
- Make bi-weekly payments
- Refinance to a shorter term
- Apply windfalls to principal