A mortgage is a loan for the purchase, construction or renovation of a home, in which the property itself serves as collateral. If the borrower fails to pay, the lender may sell the property (forced sale) to recover the debt.
How it works
With a mortgage you pay interest and usually also repayment. The home acts as security for the lender. Important terms include:
- Principal: the amount borrowed.
- Fixed-interest period: the period for which the interest rate is fixed.
- Term: the duration of the loan.
- Loan-to-value (LTV): the ratio between the loan and the value of the home.
Forms
- Annuity mortgage (repayment).
- Linear mortgage (repayment).
- Interest-only mortgage.
Under certain conditions, mortgage interest deduction may apply and a National Mortgage Guarantee (NHG) can be taken out.
Application
- Financing the purchase of an existing home.
- Financing new construction or a renovation.
Related terms
- Mortgage terms
- LTV
- Land registry
- Forced-sale value
- Buyer’s costs
- Chain clause
Want to learn more about construction terms? Visit our knowledge base at fredsdiyplans.com.