What is a mortgage?
A mortgage is a loan from a bank or other financial institution that helps a borrower purchase a property. The collateral for the mortgage is the property itself. If the borrower doesn’t make payments to the lender and defaults on the loan, the lender can sell the property to recoup its money.
How does a mortgage work?
A mortgage consists of two primary elements: principal and interest.
The principal is the amount borrowed from a lender to purchase a home.
The interest is what the lender charges you to borrow that money. Meaning, the interest is the cost you pay for borrowing the principal.
Borrowers pay a mortgage back at regular intervals, usually a monthly payment, which consists of both principal and interest charges.
Financing is the process of providing funds for business activities, making purchases, or investing. Financial institutions, like banks, are in the business of providing capital to businesses, and investors to help them achieve their goals.
There are two main types of financing available for companies: debt and equity financing. Debt is a loan that must be paid back mostly with interest. Equity does not need to be paid back, but it relinquishes ownership stakes to the shareholder.