How To Understand Mortgage Basics
To be able to buy that home you always wanted usually means obtaining a mortgage. The term ‘mortgage’ is synonymous with ‘loan’. These are what you obtain from your bank or some other lending agency. Because most people cannot buy a home with cash, then loans are their most common option. Here are a few things to help with understanding the basics of mortgages.
Two Mortgage types – All your mortgage types fall into either one or the other of these types – Fixed rate or adjustable rate. A fixed rate mortgage has interest rates that are ‘fixed’. This means it’s always the same regardless of what the market rates do until you have your loan paid in full.
The adjustable rate mortgage, just like its name implies, is adjustable. This means the payment amount changes in a very unpredictable way depending on our economy. When the economy goes well, then the interest rates are lower along with your payments. Remember that it may be spread out across thirty years. You cannot predict things ahead that far. Having a bad economy means that you may end up with very high payments, even too high for you to sustain. These mortgages are great when times are good but you may need something else when things get bad economically.
Mortgage Interest – Interest rates for home purchase are subject to change daily and sometimes more than just once a day. This depends on how the economy is going and where you live. You should do some shopping around to find the lowest possible interest rate you can. Even one percent when spread out over thirty years makes the difference of thousands of dollars.
Mortgage Length – It is mortgage size that determines its length. The most common mortgage lengths range from ten to thirty years. That means if you pay in accordance with the mortgage terms, you’ll have it paid off once that time is up. Usually the less you can afford on payments, the longer you’ll need to pay your mortgage off.
Mortgage Payoff – The totally best kind of mortgage is the one that enables you to increase the payments or make extra payments to lower what you owe. That means you’ll have the ability to pay your mortgage off early and save plenty of money. Most mortgages though will have a clause in them that limits the amount you can pay extra every year if at all. You might want to negotiate this with your lender and have this be part of your agreement.
When you apply for a mortgage, your best move for helping yourself is going in with a thorough understanding of mortgages. Then you can take that knowledge and shop around to get the best deal available to suit your needs and circumstances.