A mortgage is a loan that is used to purchase a piece of property, such as a home. The loan is secured by the property, which means that if the borrower defaults on the loan, the lender can seize the property. Mortgages are typically repayable over a long period of time, often 15 to 30 years. The interest rate on a mortgage is typically lower than the interest rate on other types of loans, such as credit cards or personal loans. However, because mortgages are secured by the property, they are considered to be more risky for lenders. As a result, borrowers are typically required to pay higher interest rates on mortgages than on other types of loans.
Mortgages can be either fixed-rate or variable-rate loans. Fixed-rate mortgages have an interest rate that remains constant over the life of the loan. Variable-rate mortgages have an interest rate that can fluctuate over time, based on changes in market conditions. Generally speaking, fixed-rate mortgages are more popular than variable-rate mortgages because they offer borrowers greater predictability and stability. However, variable-rate mortgages may be preferable for borrowers who are able to obtain a lower interest rate.
Mortgages can also be either simple interest or compound interest loans. Simple interest loans have an interest rate that is applied only to the principal balance of the loan. Compound interest loans have an interest rate that is applied to both the principal and any accumulated interest. Generally speaking, compound interest loans will result in higher overall payments than simple interest loans. However, compound interest loans may be preferable for borrowers who want to minimize their monthly payments.