How Do Mortgages Work?

The general process for a mortgage can be divided into three phases:

1. A borrower and a lender execute a mortgage agreement in writing, stipulating key terms and requirements.

2. The borrower obtains the agreed-upon amount of capital from the lender, and uses it to purchase the property that secures the mortgage loan. The borrower agrees to repay the mortgage loan (principal and interest) in a timely manner according to the terms of the contract.

3. The mortgage normally ends when the borrower completes full repayment of the principal and interest of the mortgage loan. The mortgage may also end if the borrower repeatedly fails to meet the repayment, in which case the lender may take possession of the mortgaged property.

Tellus TIP:

It's important to pay careful attention to the terms of the contract. Make sure you understand the circumstances that would lead to default and the consequences for defaulting on your mortgage payments.