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## What is a mortgage?

Mortgage is nothing but a legal agreement through which either a bank or a building society or another other firm as such lends the money at interest. However, this is done in exchange of the title of the said debtor’s property. In addition to this, there is one condition upon which this mortgage happens & the condition is that conveyance of the said title turns void at the time when the payment of debt is cleared. In other words, one can tell that mortgage acts as a security of the loan.

## Where is this mortgage used?

Generally, mortgage is used when one is planning to take a housing loan or is taking a housing loan. Moreover, this mortgage could last anywhere from 15 to 30 years wherein there are monthly payments. However, to understand mortgage, it would be better if you understand as to what are the things related to mortgage.

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## Meaning of collateral

When a person agrees to mortgage then they would be required to sign legal contract which clearly stated that not only the loan but also the interest & the other costs will be repaid. And here home turns in to the collateral for the loan. Moreover, if the debt is not repaid on time then the lender is authorised to either sell or take the property & this is known as foreclosure.

**Principal** – Sum of the money that is borrowed by an individual is known as the principal & money is then utilised to buy the dream home.

**Interest** – In simple words, interest is the amount that is charged by the lender in order to make use of the money which has been borrowed. Additionally, this interest is calculated or expressed in the form of the percentage which is known as the rate of interest or the interest rate.

Amortization is a process which is made up of both the principal & interest put together. With the help of this, there is a reduction in the debt over a period of time as after paying the interest over the years, one will notice that there is a decrease in the principal.

One has to also be aware of the fact that in addition to the above stated things, the mortgage payment is inclusive of these taxes. These taxes are for the most part known as property taxes which is levied on a certain percentage of the home’s value. Next important thing is insurance, so make sure that the house is insured before you go ahead with mortgage plans.

## How to calculate mortgage?

It is very easy to calculate mortgage & all you will have to do is follow the simple steps given in the mortgage calculator. In the 1^{st} field, you will have to enter the total amount & this should be followed by the down payment. One should also mention the interest rate & amortization period apart from the payment period. Once all the fields are filled, click on the tab, calculate.

### Formula to calculate mortgage

To calculate the mortgage payments with an equation, the below given equation will come handy –

\( M\,=\, P \frac {r(\, 1 \, + \, r \,)^{n}}{(\, 1 \, + \, r \,)^{n}\,-\, 1}\)

In the mortgage equation (formula) that has been given above, M stands for the monthly payments while the principal is represented by P & r is for rate whereas n means is the number of payments.