What is a mortgage and how does it work?

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Real Estate FAQ

Q: What is a mortgage and how does it work?

A: When a bank or other financial institution provides a loan for the purchase of real estate, a mortgage interest is created. The bank’s loan is secured by an interest in the property. State laws interpret mortgages differently, resulting in different consequences if the borrower fails to make a payment. Mortgages can be fixed rate (interest rates and monthly payments stay the same throughout the life of the loan) or adjustable (interest rates may vary with economic changes and monthly payments change accordingly). Some government programs offer special mortgage rates or programs for veterans or other qualified individuals. Some homeowners will take on a second mortgage or a home equity loan secured by their property for home improvement or other financial needs. All of these mortgage interests can be foreclosed if the homeowner does not meet his or her financial obligations under the loan.

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