Discover why so many successful investors support their investment careers with house hacking—and learn from a frugality expert who has “hacked” his way toward financial freedom!
A mortgage is a legally-binding document you sign when purchasing a property. Secured by the property itself, a
mortgage allows the lender (usually a bank) to claim the property if you don’t repay the loan.
Signing a mortgage may be nerve-racking for a first-time buyer—and for good reason. (After all, "mortgage" comes
from the Latin word for “death,” i.e. you’re stuck with this until the day you die, like it or not!) And sure, a
mortgage represents a big commitment, often spanning 15 or 30 years depending on the life of the loan. But
mortgages are also the simplest, most realistic way for the vast majority of people to buy a home. And if you
choose correctly, your mortgage can be an affordable path to owning a home or investment property.
So what are you signing yourself on to when you take on a mortgage? A mortgage commits the homeowner to monthly
payments that typically encompass four items:
The principal is the actual amount of money you’ve borrowed. This doesn’t include the interest and other items
below that are also wrapped into your monthly payment. As you pay your mortgage each month, part of that payment
will go towards your principal.
Interest refers to the money you pay for the privilege of having a loan. Interest rates can vary based on several
factors, including credit score, home price and loan amount, down payment, loan term, loan type, and more.
Property taxes are often included in a mortgage payment. Your lender then keeps this money in an escrow account
and pays it on your behalf when your tax bill is due.
Mortgage insurance is required by the lender when you make a down payment of less than 20%.
This includes private mortgage insurance (PMI, which you can read about more in
and insurance required for government-backed loans.
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