How does a mortgage work exactly?

Adriaan

Simply put, a mortgage is a loan on real estate.

Here is a fuller explanation:
Freddie Mac: What is a Mortgage?

A mortgage is security for a loan.

Let's say you want to buy a house. You have $25,000 in cash but the house costs $100,000. So you apply for a mortgage loan of $75,000. The lender agrees to give you the loan. At the closing you sign a mortgage note, which is the promise to pay the lender $75,000 plus interest in specific monthly payments.

At the closing you must also sign a mortgage. This is a document that says if you fail to make the payments to the lender required by the mortgage note, then you agree that the lender will be entitled to take your house, sell it and apply the sale price to the outstanding balance of the loan amount.

Once these documents (and about ten zillion other documents) are signed at the closing, the lender gives you the $75,000 so you can complete the purchase of the house. Usually all of this stuff is handled by the title closer (an attorney, title agency or escrow company) and all you have to do is sit there and sign papers.

After the closing if you fail to make the payments then the lender will foreclose and have the house put up for sale at auction. If the house sells for more than the loan amount then any extra will be returned to you. If the house sells for less than the loan amount then you will still owe the difference to the lender.

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Originally Posted by adobun01

How does a mortgage work exactly?

Adriaan

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Can you be more detailed in your question? Lisa gave a very good explanation, but I'm not sure if that's your question (since it was so vague).

From another angle a mortgage works like any loan. You sign a contract with a lender to give you money which you promise to pay back under terms listed in the contract. You then get the money, which, in the case of a home mortgage usually goes to the seller with some used to pay fees associated with the sale of the home or the loan of the money.

You then make payments to the lender based on the terms of the mortgage contract. A portion of each payment usually goes to reduce the prinicpal balance of the loan with the rest going to pay the interest.