A mortgage is an agreement between you and investor that gives investor the right to take your property if you fail to repay the money you have borrowed plus interest.
Mortgage loans are used to buy a home or to borrow money against the value of a home you already own.
In simple words, a mortgage is the loan taken to pay for a home or other piece of real estate.
Given the high cost of buying a property, almost every home buyer needs long-term financing to buy a home.
Usually, mortgages have a fixed rate and you have to pay it over a duration of 15 or 30 years.
The Types of Mortgage Loans
- FIXED RATE MORTGAGE
Traditional fixed rate mortgage loans are a safe play because of their stability that means monthly payments won’t change over the life of your loan.
This is your standard, plain-vanilla mortgage.
Fixed loans usually come in terms of 15 years, 20 years or 30 years.
The main advantages of this kind include that your monthly principal and interest expenses remain the same throughout the life of the loan and you can budget other expenses properly month after month.
Although, you have to pay greater amount with time.
- ADJUSTABLE-RATE MORTGAGE (ARM)
There are many different ARM’s. The basic idea is that their Mortgage interest rate varies over a lifetime time of the loan.
This is due to changes in market conditions.
The Rate changes reflects change in the economy and the cost of borrowing money.
The Mortgage interest rate lasts for the first five years and then the rest is free to change for 25 years.
The main plus point is that you will be able to save a lot of money on interest payments.
- INTEREST-ONLY MORTGAGE
In an interest-only mortgage you have the option to pay the interest portion of your monthly payment instead of paying full for the first five or ten years.
This slows down your repayment process for time being but can be useful.
Next, the rest of the mortgage is paid off in full like a traditional mortgage.
With this type of loan, you will not rush to build equity, as you are initially only paying interest.
These loans can be a best option for those who know they can sell or refinance.
And, also for those who can expect higher monthly payments later.
- FHA LOANS
These kinds are curtailed by the Federal Housing Administration.
These types of home loans can help borrowers in making homeownership possible.
It is useful for those who don’t have large down payments and don’t have original credit.
They come with built-in mortgage insurance to avoid the possibility of not being able to repay the loan.
The required down payments are small with these loans.
- USDA LOANS
It is known as the USDA Rural Development Guaranteed Housing Loan Program which is a zero down payment mortgage loan.
USDA loans help borrowers whose income ranges from low to moderate to buy a home in rural area.
You have met certain income limits to qualify if you are to buy a house in the USDA-eligible area.
Some USDA loans do not require down payment for eligible borrowers with low income.
- VA LOANS
These loans make it easier for U.S. Armed Forces veterans, and sometimes their spouses, to buy homes.
They do not require a down payment and are guaranteed by the Department of Veteran Affairs.
In other words, VA loans provide stretchy, low-interest mortgages for members of the U.S. Military and their families.
The closing costs are generally capped and can be paid by the seller.
FHA, USDA and LA loans are issued by the government.
These government protected loans are perfect if you have low cash savings, if you’re poor and can’t meet the requirements for a traditional loan.
VA loans offer the best terms and the most elasticity compared to other loan types for military mortgagors.
Mortgage interest rates
Investors charge interest on a mortgage as you cost money lending.
Your mortgage interest rate determines the interest amount you will pay along with the principal or loan balance for the duration of your mortgage.
Mortgage interest rates determine your monthly payment on the basis of the life of the loan.
Even a slight difference in rates can run your monthly payments up or down, and you can pay thousands of dollars in interest over the loan period.
Knowing how interest rates factor in your loan pricing, as well as what goes into determining your rate, will help you evaluate lender estimates with greater accuracy.
Things to keep in mind before taking a mortgage loan
- Loan Size
- Annual Percentage Rate (APR)
- Interest rate and any associated points.
- Closing cost of loan including lender’s fees
- The type of interest rate and whether it can change (is it fixed or adjustable?)
- Loan tenure, duration of repayment.
- Other risky features, such as pre-payment penalty, balloon clause, interest-only facility, or negative amortization.
Factors that determine the rate the mortgage
- Credit score
- Down payment
- Property location
- Loan amount/closing costs
- Loan type
- Loan term
- Interest rate type
Things to do to get best rate for your mortgage
If you want a rate that is at least equal, or better yet below, the current average rate.
- Shop around with multiple lenders.
- Compare rates from more and more lenders to ensure that you’re getting competitive offers on a new mortgage or refinancing.
- Shop for a mortgage and question with big banks and credit unions,
- Also contact online lenders, regional banks, direct lenders and a mortgage broker.
Well, it’s a lot of information about mortgages and related things.
Hopefully, it will help you.