MORTGAGES AND OTHER "SCARY WORDS"

Before I moved to the U.S., I have never heard about the MORTGAGE. Now, almost two years later, this word has become very familiar to me because, as I found out, the biggest part of our family income  goes every month to cover this expense. Since back in Russia nobody provided us with any kind of "Credits",  it was a real shock for many of us to discover that most of the population abroad live in the permanent debt. 
It was a big surprise for me to realize that by saying "I have bought a house" or "I have bought a car" the majority of native population usually implies that they put down couple thousand of dollars and how have to pay the significant part of the borrowed amount along with high interest during the next twenty or thirty years.

THOUGH MANY PEOPLE CHOSE TO RENT APARTMENTS INSTEAD OF BEING INVOLVED IN MORTGAGE DEBT, THERE ARE MANY OBJECTIVE REASONS WHY VERY OFTEN IT MAKES MORE SINCE TO BUY A HOUSE. HERE YOU CAN FIND THE BASIC INFORMATION, WHICH CAN HELP YOU TO MAKE A DECISION IN CASE YOU AND YOUR FAMILY ARE CONSIDERING BUYING A HOUSE.

WHAT DO YOU NEED TO KNOW ABOUT MORTGAGES

MORTGAGE is a debt secured by a "lien" on Real Property. This means that once someone has borrowed money from a lender to purchase land (can include a home located on that land), the lender can confiscate or take back that land from the buyer in the event of nonpayment. The bank or mortgage company has the right to sell such property and use the proceeds to pay off the loan. A mortgage often has a 30 year term of life. The home buyer generally makes monthly payments until the mortgage is paid off. A lender also charges "interest" (additional  money charged to tte borrower to make it worth lending the money assuming the risk of nonpayment), which must be repaid, and is included in the monthly payment. Typically, the monthly payment is comprised of four things: principal, interest, taxes, and home owners insurance - often labeled PITI. 

The principal is that part of the loan actually borrowed to purchase the property. For instance, if one was to borrow $360,000 (total principal), then the principal part of the monthly payment would be $1000 on a 30 years loan. The amount of interest one pays per month, in addition to the principal, depends upon the percentage rate agreed upon the time the mortgage was initiated. For instance, the interest may range anywhere between 6%-9%. Rates vary according to the going rate on the open market. Mortgage rates are compounded monthly.

Compound interest is the situation where interest paid on the investment during the 1st period (1st month) is added to the principal and, during the second period, interest is earned, by the lenderee, on the original principal plus the interest earned during the first period. In other words, it can become quite expensive to borrow!
Don't let this scare you away from borrowing to purchase a home.
The only other alternative is to lease or rent an apartment. If you are renting, someone else gets all the money. If you purchase a home through a mortgage, what ever you pay during the month, goes toward paying off the principal. That money is yours - it is called equity.

The other two are taxes and insurance. 

Taxes are paid to the county and assessed usually every 5 years (divided into 60 equal installments to pay each of 5 years taxes due). 

Insurance (homeowner insurance) is paid to an insurance company, and is also part of the monthly payment. The bank or mortgage company requires htat you purchase homeowner's insurance in the event that something happens to the property  like fire, flood, earthquake, etc... An insurance "policy" would, in essence, pay off the mortgage early... they can't collect any more interest after the total principal is paid off.
Lastly, one must "QUALIFY" for a mortgage. A lender looks at you and your spouse monyhtly income to determine if you can afford to pay the monthly payments. They also look at your credit - or your history of paying bills.