Mortgage

Buying your first new home can be one of the most exciting things that you do in your adult life. The idea of putting down roots and establishing yourself somewhere gives us a sense of security and accomplishment. There is only one thing standing between you and your dream home. A mortgage. If you do not completely understand what a mortgage is, and how you go about getting one, you are not alone. But taking some time to research and get the facts about mortgages will help you to make a better financial decision for you and your family.

Basically, a mortgage is an agreement between you and the entity that is loaning you money. They agree to give you a large amount of money, in return for a stake in a substantial asset (usually real estate) that you own. You can take out a mortgage, even if you are not buying a house. For example, people may use their house as collateral if they want to borrow a significant amount of money to invest in a company. For the purposes of this article, we are going to focus on first time mortgages, usually those involving the purchase of a home or property.

There are a few different kinds of mortgage loans. The traditional mortgage loans that about 50% of borrowers take out, are the fixed rate loan and the adjustable rate loan. As the name suggests, the fixed rate mortgage loan is a loan in which an interest rate is decided upon, based on market conditions at the time the loan is made. These interest rates tend to be slightly higher, but afford the purchaser with the security of knowing that their loan payments will stay roughly the same from month to month. Conversely, the adjustable rate mortgage (or ARM) allows buyers to have a fixed rate for a short amount of time (like 2 years), and then the rate is subject to monthly change according to future market conditions. The adjustable rate mortgage may involve less interest payments over the course of the loan, but the borrower must plan for sharp increases in his or her loan payments each month.

The other types of mortgage loans are a little more risky, but may be better than the traditional options for younger, first time home-buyers. The first of these is called an interest-only or balloon mortgage loan. In these cases, the borrower may pay a significantly smaller amount during the first few years of the life of the loan. Interest only loans are just as they sound. The borrower is only responsible to pay back the interest that accrues on the borrowed sum during the initial period. The same sort of set up goes for a balloon mortgage, but the amount may be a set number each month, rather than varying with interest rates. After the initial period with both of these loans, the whole balance of the loan is due in one lump payment. The other kind of non-traditional mortgage loan is called a graduated payment loan. This allows the borrower to pay smaller monthly payments initially, and then slightly more after a few years, and more still after a few years. The idea is that as your career progresses, you will be able to afford a higher monthly payment.

Whichever loan style you choose, be sure that you are aware of all of the additional expenditures. Mortgage brokers and mortgage lenders get paid more when you borrow more, so they will approve you for the maximum amount they can. Be sure that the monthly payments are within your ability to make, while leaving some wiggle room for unexpected expenses.