Home Mortgage and Interest Rate

A home mortgage and interest rates are two of the most important things that every homeowner (or potential homeowner) should have a firm knowledge about. The reason for this is because unless you’re paying the full amount in cash, then coming across mortgages and interest rates is inevitable. Both can be hard to understand at first, but once the overall concept of a home mortgage or interest rates is understood, then learning will be much quicker and easier, and you will be able to talk about them like a pro.

So, for starters, what exactly is a home mortgage? A home mortgage is, in essence, a loan provided by banks for people to be able to afford to buy property (such as a house, or an apartment). It is, perhaps, one of the biggest loans many people will take back, and the repayment time on a mortgage can vary depending on how much you borrow. Basically, when applying for a mortgage, you will need a cash deposit for the bank to take, and then the bank will verify how much you can pay back with your current wages. For example, if you earn $40,000 a year, then banks will often lend you about 5x your currently yearly wage. You will then use about half of your paycheck (or however much is decided upon) to pay this mortgage off, and you will continue to do so until the whole thing is paid off. Often, this can take anywhere from 5-30 years, and is one of the longest lasting loans available today. So, the bank loans you the money you need to buy a home, and then you will pay it off each month depending on how much you can afford. In some cases you can make overpayments, and what this means is that you will be able to pay it off much quicker. For example, if your monthly payment is $1000 and you pay $2000 dollars one month, then you will have a month less on your mortgage. This comes in very handy after a promotion or unexpected cash gifts. A mortgage is also affected by interest rates, which are explained below.

Interest rate affects the whole world. In relation to mortgages, interest rates mean how much you will pay to the bank for loaning you the money (how much interest you will pay them for helping you out). For example, if you borrow $200,000, the bank may charge you 10% interest, so you will eventually be paying the bank back $220,000. Banks do this to make money from lending you the mortgage, like any other money lenders. The potential problems with interest rates are that they depend on the world’s economy, so while one year you could be paying back 2% interest, the next year you could be paying back 15%, which would obviously affect how much money you had each month.

Both a home mortgage and interest rates can be quite complicated, but I hope I have given you an overview of what they both mean. Be sure to learn further about each of them, as it could save you a lot of time and trouble in the future!