A mortgage — a loan to finance the purchase of your home — is likely the largest debt you’ll ever take on. A mortgage is actually made up of several parts — the collateral you used to secure the loan, your principal and interest payments, taxes and insurance.
Since most mortgages last 15 to 30 years of monthly payments, it helps to understand the working parts.
When you agree to a mortgage, you’re signing a legal contract promising to repay the loan plus interest and other costs. Your home is collateral for that loan.
If you don’t repay the debt, the lender has the right to take back the property and sell it to cover the debt, a process known as foreclosure. In a foreclosure, you will lose your home and you will likely damage your credit rating, affecting your ability to buy a new home in the future.
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