How Does a Mortgage Work?
When you get a mortgage, the lender pays the seller and you repay the lender over time. Each monthly payment is split between interest owed and principal reduction — a process called amortization. In the early years most of the payment is interest; by the end, most goes toward principal. Your home secures the debt throughout.
What Types of Mortgages Are Available?
The most common types are fixed-rate mortgages, where the interest rate never changes, and adjustable-rate mortgages, where the rate can shift after an initial period. Government-backed options include FHA loans (low down payments), VA loans (veterans only), and USDA loans (rural areas). Each has different qualification requirements and cost structures.
What Factors Determine Your Mortgage Rate?
Lenders set your rate based on credit score, down payment size, loan type, loan term, and prevailing market rates. A higher credit score and larger down payment typically earn a lower rate. Shopping at least three lenders and comparing APRs — not just rates — helps you find the best total cost.
Frequently asked questions
What credit score do I need to get a mortgage?
Conventional loans typically require a 620 minimum, while FHA loans accept scores as low as 580 with a 3.5% down payment. Higher scores qualify for better rates, potentially saving tens of thousands over the life of the loan.
Can I pay off my mortgage early?
Yes. Most modern mortgages have no prepayment penalty. Making extra principal payments reduces your balance faster, saves interest, and can shorten the loan term significantly.
What is mortgage preapproval?
Preapproval is a lender's written commitment to lend up to a specific amount based on a review of your income, assets, and credit. It strengthens your offer with sellers and clarifies your real budget before you shop.