Hello and welcome back to the blog here at TVFCU! Today, we wanted to further our coverage of mortgages here in New York, and have an explainer on what mortgages are and why they’re necessary when it comes to buying your home.
Mortgages can be complicated and tricky loans, but we want to give you a high-level look at the basics as best we can. Keeping you informed and having some background knowledge when you do seek out one of these loans is important.
Some of this information may be old news to a good portion of you, but enough first-time homebuyers are looking for the basics that we felt it necessary to have a resource to refer to.
Mortgage: An Easy Definition
Before we jump into the deep end, we should probably talk about the basics. What is a mortgage?
A Mortgage, aka a mortgage loan, is an agreement between you and a lender to buy or refinance a home without having all the cash upfront. This agreement gives whoever the lender is the right to repossess the property if you don’t abide by the mortgage agreement (usually by not repaying the money you borrowed plus interest).
Who Gets Mortgages?
The vast majority of people who buy homes do so with a mortgage loan. It’s a necessary part of the process if you can’t afford to outright buy a property. Sometimes people who can afford to buy properties outright also get mortgages to free up funds for other investments.
Is there a difference between a loan and a mortgage?
Yes! It’s like squares and rectangles. Loans are the rectangle, and mortgages are the square. All squares are rectangles, but not every rectangle is a square. The same thinking applies to mortgages and loans. Mortgages are a type of loan used to finance a property.
Mortgages are what’s known as a “secure loan”, where the borrower (you) promises collateral (the home) in the event of nonpayment.
How Do Mortgage Loans Work?
When you get a mortgage, you agree to pay the amount of the loan back, plus interest, over a period of several years. It differs from regular loans because regular loans don’t allow the lender to sell the purchased item to another party. Think of your credit card; if you fail to make your payments on that, the items don’t need to be returned (however you will likely have to pay late fees and/or other charges in order to bring your account back into good standing and to eliminate debt).
First-time homeownership and the associated mortgage loan process can lead to many questions. Get in touch with us at TVFCU, we’d be happy to help! You can follow along with our blog where we’ll share posts like this one here and more going forward. You can give us a call at 585-343-5627 or 800-722-8224, or by reaching out via our contact form.