Mortgage 101: What is a Mortgage?

Let’s keep it simple: a mortgage is a type of loan the vast majority of people take out to purchase or refinance a home.

It isn’t the only thing needed to find a new home, of course, but it is one of the most important. Unless you have enough savings to purchase a home outright, you will have to visit a bank or mortgage lender such as Root Mortgage to help.

[This might be a good place for a graphic/pie-chart about the percentage of homebuyers using a mortgage, particularly first time homebuyers — which I would imagine would top 90%]

A loan can be defined as any lump sum of money lent by any entity with the promise to pay it back, usually in increments with interest added on top.

A mortgage is a type of loan used specifically for property, typically a lengthy one which begins with a higher proportion of payments going to interest until it reverses and the majority of payments apply to the principal of the loan — the initial loan amount agreed to by the lender and borrower.

The most common type of mortgage is a fixed, 1520- or 30-year loan, but the details of it can vary wildly from buyer to buyer. Size of the down payment for a home, federal interest rates, income levels, and the housing market can all have a significant impact on how large the loan you can get approved for, and for the duration of the loan.

Ultimately though, the interest on the mortgage represents the level of risk the lender takes in writing the mortgage.

Additionally, the mortgage is a secured loan, meaning the borrower promises collateral to the lender. In this case, the property is the collateral, meaning the lender has the right to claim the property in case the borrower defaults on the loan — in other words, if for whatever reason the borrower does not make the agreed upon payments, the lender can seize the property used as collateral.

It sounds scary, but worry not. Oregon has a foreclosure rate — the rate at which lenders file claims to seize properties for nonpayment of loans — that ranks 47th of 50 states as of August 2021. Of the state’s 1,768,901 homes, just 34 went into foreclosure that month for a rate of one for every 52,027 homes. Washington ranks a little worse, at one foreclosure per 13,053 homes during the same time period.

A mortgage is like any other loan, but with one major difference: A mortgage advisor can walk any prospective borrower through their options to best fit you and your family. This process is complicated and can be stressful, but with one of our advisors on your team, things just got a whole lot easier.