Mortgage 101: The Basics of Funding Your Home Purchase

Most first-time homebuyers in the US use a mortgage to finance their home purchase. In fact, only 30 percent of U.S. home purchases in 2021 were paid entirely with cash. But understanding how mortgages work and what type will work best for you can be challenging.

What’s a Mortgage?

Put simply, a mortgage is a type of loan used to finance your home purchase.

When you obtain a mortgage loan from a lender, they cover the cost of the home upfront to make up the difference between the sale price and your down payment. You must then pay the lender back in small increments over the loan’s term—usually 15 or 30 years.

Your monthly mortgage payment doesn’t just go toward the loan’s principal—you’re paying for other expenses as well.

The Anatomy of a Conventional Mortgage Payment

Can Your Mortgage Payment Change?

How consistent your payment remains over the loan’s term is primarily determined by the mortgage rate you choose.

If you get a fixed-rate mortgage, then the loan term and interest rate will remain consistent unless you refinance. This means that you may only see payment fluctuations due to changes in property tax rates, homeowners insurance rates, and PMI.

If you get an adjustable-rate mortgage, you may see more substantial fluctuations after the first few years of your loan’s term, as the interest rate changes with the markets (typically every six months to a year).

You should carefully review the loan terms to see how far up the interest rate can go, since this can substantially change the cost of your mortgage over time.

No matter which mortgage type sounds best at first glance, you must evaluate your full financial picture before looking at houses or pursuing financing. That means understanding your income, credit score, debt levels, and—most importantly—how a home will further your overall financial goals.

Get in touch with our expert advisors to see how they help you navigate the landscape.

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