What is a Mortgage?
A mortgage is an arrangement under which a lender makes a loan in return for an interest in real property that secures the loan. Mortgages are the most common and traditional means of financing the purchase of real estate.
The terms of mortgages, including their payment terms, may vary greatly.
- A fixed rate mortgage is a mortgage on which the interest rate on the mortgage loan is fixed for the life of the loan.
- An adjustable rate mortgage (ARM) is one in which the interest rate varies, usually within a minimum and a maximum figure. An ARM may be attractive because the initial interest rate may be lower than a fixed rate mortgage; but the borrower takes the risk that at some point in the future the interest rate may go above the fixed rate amount that could have been obtained.