What You Need To Know About Mortgages: No Luck Needed

A couple celebrates the purchase of their new home.

With St. Patrick’s Day right around the corner, you may be thinking about exploring the pot of gold that is homeownership. At the heart of this journey lies the concept of a mortgage – a financial instrument that paves the way to owning a piece of the American dream. But what exactly is a mortgage, and how does it work?


Keep reading to learn more about the mysteries of mortgages, from understanding mortgage rates to harnessing the power of mortgage calculators. The good news: you don’t need to have the luck of the Irish on your side to start your homeownership journey.

What is a Mortgage?

At its core, a mortgage is a loan provided by a financial institution, such as a bank, to help individuals purchase a home. It's a contractual agreement where the borrower (you) pledges the property as collateral to secure the loan. Typically, borrowers opt for a 30-year mortgage term, which means you have 30 years to repay the loan. This is usually done through monthly installments comprising both principal and interest.


So, how exactly does a mortgage work? Here are some of the basic steps. First, you find the house you want to buy. It’s likely that you wouldn’t have all the cash needed to buy it outright, but usually you would need to pay a small part of the total cost upfront. This is also known as a down payment. It helps show that you’re serious about buying the house.


After you've made your down payment, the bank or lender steps in to help you pay for the rest of the house. They give you a loan for the remaining amount, which you agree to pay back over time. And instead of paying back the entire loan all at once, you make smaller payments each month.


Finally, once you’ve paid off the entire loan, you’re officially a homeowner! See – no luck needed.

What are Mortgage Rates Based On?

When you have a mortgage, it’s important to keep in mind that you have to pay interest to your mortgage lender as well as paying back the principal. And the amount of interest you’ll have to pay is based on mortgage interest rates, or just mortgage rates for short.


Mortgage rates can be highly variable, as they are influenced by many different types of factors. Economic indicators such as inflation, employment rates, and the Federal Reserve's monetary policies play a significant role in current mortgage rates.


Additionally, market conditions, borrower creditworthiness, and the term of the loan all contribute to determining mortgage rates. The term of the loan is how long your mortgage is for – for example, 30 year mortgage rates will be different from 20 year mortgage rates. At some point, you may find it advantageous to refinance your mortgage, which may help you benefit from a lower mortgage rate.


It can be tricky to understand all the complexities of mortgage rates, including how much you’ll end up paying over the life of your mortgage loan. But mortgage calculators are one type of tool you can use to help make things easier and plan for the future.

How Do Mortgage Calculators Work?

Mortgage calculators, or mortgage payoff calculators, use mathematical formulas to estimate various aspects of a mortgage loan, such as monthly payments, total interest paid, and loan amortization schedules.


With a mortgage loan calculator, all you have to do is enter in the variables – like how much you want to borrow, the interest rate, and how long you want to take to pay it back. Then, the calculator shows you how much your monthly payments will be and how much interest you'll pay over time.


Mortgage calculators can be extremely helpful because you can play around with different numbers to see how it affects your payments. For example, you can see what happens if you borrow more money, or if you choose a longer or shorter time to pay it back. This way, you can figure out what works best for your situation.


Plus, mortgage calculators are great for planning out your financial future. They show you a breakdown of how much of your payment goes towards paying back the loan (principal) and how much goes to paying back the lender (interest). This helps you budget and make smart choices about your housing costs, now and in the future.

Explore Your Mortgage Options at Academy Bank

Whether you’re considering buying a home for the first time or just exploring your mortgage options,* Academy Bank is by your side. Our experienced mortgage experts and loan advisors are ready to help you work toward your goal of homeownership.


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*Subject to credit approval.  Each loan product has specific terms and conditions. Fees apply.