What Is A Mortgage Anyway??

I'd hazard a bet that many people have signed the biggest loan of their lives - their mortgage - without really understanding the basic structure.  I did, at least the first time around?

You think your mortgage is the loan on your house? Sort of!  There are actually two components.

The original phrase “mort gage” translates as “death pledge”! But as this video explains, a mortgage is a loan obtained to purchase real estate.  The "mortgage" itself is a lien - a legal claim on the home or property that secures the promise to pay the debt.  I can imagine some French lord saying "your cheeldren will pay, serf."  Something like that.

Mortgages, like most loans, have two features in common: principal and interest.

The principal is the amount you are borrowing which is “secured” by the lender’s claim on the property.

The interest, usually stated as the percentage rate is the additional amount paid for borrowing. Mortgage interest is ‘compounded’ - interest on interest, over time.  

Einstein was quoted (probably aprocaphal and inaccurate, but what the hey) as saying that the greatest invention of the human mind was compound interest.  It's tough to get a grasp of the difference between (say) 4% and 5%, but it's BIG because of compound interest.  

I think our brain says "speed", when it's really "acceleration."  Argh.  Watch this, it might help.

This video - and a couple hundred others - are available licensing at Fast Forward Stories.