When shopping for a mortgage, there are a few basic facts that you should know. Purchasing a home represents a large investment, and as such, it is important to understand the details of how a mortgage works. Of course, it is important to understand every details of your specific mortgage agreement, but there are also a few basics that you should know before you look for a mortgage.
A mortgage is a loan that you receive for the purpose of purchasing a house or other real estate property. In almost all cases, you will be required to have a down payment in order to qualify for a mortgage. A sizable down payment will help lower your monthly payments on your mortgage, since the principal, which is the amount of money you will be borrowing, will be less.
Another important factor to take into consideration when shopping for a mortgage is the interest rate. Rates vary according to many different factors, although overall they are based on the federal government set interest rates. There are both fixed rate and adjustable rate mortgages, which sometimes referred to as "balloon" mortgages. There are advantages and disadvantages to each of these.
A fixed rate mortgage will lock you into a specific interest for the life of the mortgage. This can be good if interest rates rise, but if interest rates fall, you will still be locked into your original rate. Fixed rate mortgages are usually available for 15 years, 20 years and 30 years. A 30 year mortgages will offer the most affordable monthly rates, but you will also pay the highest amount of interest over the life of the loan.
The interest rate on an adjustable rate mortgage fluctuates as the interest rate changes over time. After the initial phase of the loan, the interest rate could change on a regular basis, according to the details of your mortgage agreement. A "balloon" mortgage will offer lower interest rates for a certain amount of time, often around 5 to 7 years, after which time a "balloon" payment is due which will pay off the mortgage. Although some people consider these loans to be risky, they are a good option under some circumstances.
There are also government loans available which are designed to help certain groups of individuals purchase a home. There are qualification requirements for these loans, but if you qualify, they often offer lower interest rates.
It is important to realize that you must first qualify for a mortgage. There are specific criteria that lenders refer to, such as a person's debt-to-income ratio and credit history. It's also important to remember that there are closing costs involved with getting a mortgage. These fees cover the taxes and various fees that are involved in processing a mortgage.