The Basics of Getting a Mortgage

A home is quite costly and not everyone can purchase one outright for the full amount. If you have a ton of money saved up, you probably could afford to spend it all on a home. For the most part, people choose to take a loan to pay for their home. In this case, with a home, the loan is referred to as a mortgage. Depending on the type of mortgage and your payment structure, you will have to pay monthly mortgage payments to pay off your loan. A large portion of your mortgage payments will be for the interest rate which you will pay. Mortgage rates vary from institution to institution, so it is essential for a buyer to consider the various lenders.

In terms of mortgages, there are two different types that are quite commonly used. There is adjustable rate mortgage and the fixed rate mortgage. The terms of the loan are quite obvious from the name itself. The fixed rate mortgage option allows the buyer to fix in the interest rate, without it having to change every time the lender revaluates the base rate.

With a fixed rate mortgage, the number of years you would set is about thirty years. The interest rate on a fixed rate mortgage is usually higher than the other types of mortgages, and this is to accommodate any decrease in base rates. With a fixed rate mortgage, your interest rate will be the same for a period of time, which you will determine with the lender. Since the rate is the same, your monthly mortgage payments will remain the same as well. The good thing about this option is that if the base rate does increase, you will not be negatively affected. An increase in the interest rate would mean an increase in total mortgage payments. However, if there is a decrease, you will not be able to take up on the discount.

A lender will consider the risks involved in handing over you a mortgage acceptance. The risk factor is dependent on your credit history, current employment, down payment and the amount of the mortgage. Large mortgages are harder to qualify for and you would need to supply a large amount of money for the down payment. In some cases, the lender would play around with the interest rate to make up for the risk.

An adjustable rate mortgage is the second most common option people go for. This type of mortgage is quite different from the usual fixed rate mortgage. An ARM is setup as a two step mortgage, because there are two set conditions for fixed periods. The interest you get charged will change at one point during the life of your mortgage. If you have a 5/25 ARM, the interest rate for the first five years would be lower than the proceeding twenty-five years. After the first five years, the interest rate will turn into an adjustable rate. The adjustable rate will fluctuate with the bank’s base rate, so it could go up or down. Choosing the right type of mortgage option is important, so make sure to consult with a specialist prior to signing documents.

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