Buying houses with mortgages is better than renting because when you rent, you don’t get to own the home. Yet, you’re paying money to someone else every month. When you make a mortgage payment, you pay for your home – bit by bit.
You’re building it, and it becomes yours.
If the price of your property goes up, you can sell it and make money. That’s extra money for you. A mortgage is like a special loan from the bank, so you can buy a house. But they hold onto the property until you pay them back. Because of this, if you don’t pay them back, they can take the home away.
You’ll usually need to pay some of your own money upfront. That money acts as a down payment. Then the bank will lend you the rest – the principal. It’s a fancy term for the actual amount you borrow. In that case, you pay them back the principal plus a little extra fee – interest.
There are two ways to pay interest when you borrow money. Fixed is like saying you agree to pay a certain amount for borrowing the money, no matter what. Variable interest: The extra money you pay can go up or down. Fixed-rate loans are safer but maybe more expensive. The amortization period or term is how long it takes you to pay off all the money you borrowed. Short-term, means higher monthly payments but less interest overall. Long term? Well, it’s the opposite.
