Significance

A mortgage payment is usually the largest payment per month in any American household. It allows the homeowner to purchase a house without having to save for the entire cost up-front. Usually, the suggested mortgage payment is 25 percent of the homeowner's monthly salary.

Function

A mortgage can serve to purchase a house, or in the event of a refinance, to combine multiple debts. Either way, the funds a borrower spends on the interest of that mortgage can be written off as a tax deduction on his income taxes.

Time Frame

A mortgage can be amortized over a variety of terms, to suit the payment to the borrower's budget. The average homeowner has a 30-year mortgage, while terms of 10, 15, 20 and 40 years are also available.

Considerations

A mortgage can be termed over many decades, however, if the borrower plans accordingly they can pay off the debt sooner. With one extra mortgage payment per year on a 30-year mortgage, seven years can be taken off the loan. With two extra payments per year, the debt can be cut in half.

Misconceptions

Many people borrow as much as possible on their mortgage to limit their out-of-pocket expense at the time of purchase. However, this can backfire if the home loses value or the homeowner needs additional funds later for debt consolidation. The homeowner needs to consider the risk as well as the reward with a small down payment.

Source:

InvestorWords.com

Bankrate.com