In general, a mortgage involves a lender paying the seller of a home whatever the buyer cannot afford at the moment. The buyer, in turn, agrees to pay the lender back, plus interest, in monthly installments over a certain period of time – usually 15 or 30 years. A mortgage is secured by the home itself with a lien, which means if you do not make payments as agreed, the lender has the right to take the home from your control through a legal process called foreclosure in order to sell the home and recoup its money.
Mortgages usually have fixed or adjustable interest rates, hence the names Fixed Rate Mortgage (FRM) and Adjustable Rate Mortgage (ARM). This simply means you will either have the same interest rate and thus the same monthly payment for the life of your mortgage or will have a rate that changes at specified intervals after an initial period of being fixed. Mortgage payments are usually due on the first day of each month, and interest accrues on a monthly, not daily, basis.
In addition to both the principal amount you must borrow to purchase your home and interest payments, your mortgage expenses may include some hefty lender’s fees (e.g. application fees, underwriting fees, and processing fees). By shopping around for your mortgage, you can not only lower your interest rate, but also the lender’s fees for which you will be responsible.
All mortgages in the U.S. are overseen by one government agency or another, and many are actually sold to government entities. Fannie Mae, Freddie Mac, and Ginnie Mae – pseudonyms for The Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the Government National Mortgage Association, respectively – were founded to encourage building, buying and home ownership in the U.S., and insure a significant portion of the loans made in the U.S. each year.