I know many people are ver confused when they are trying to get their first mortgage. Don’t disarm, there’s nothing to worry abou. Read the following guide and familiarize yourself with the most common things you need to know about a mortgage loan.
The type of mortgage
Normally, there are two basic categories of mortgage loans: with fixed interest rate and variable interest rate. The most common used is the fixed interest mortgage, for which you pay monthly the same amount of money for as long as you carry the loan. Variable rate mortgages come with risks, as the interest changes with the market and may increase over time.
The principal
When you ask the bank for a mortgage, they will tell you how much they can give you based on your income. The whole sum represents the principal, the amount you will get to buy your house, minus the down payment.
The monthly payment
This is one of the most important things you need to check when shoping for a mortgage loan. You have to make sure you can afford the monthly payments or you risk loosing the house.
There are possibilities, even for those who cannot afford big monthly payments but, they come with risks. For example, interest only mortgages carry the lowest payment but, they do nothing to reduce the principal so, after months and years of payments, the amount you own the bank will still be the same as in the first day, when you signed the contract.
The term
The mortgage term is the number of years your loan will be active, usually 30 years. There are also shorter terms available but they carry higher monthly payments.
Closing costs
Pay attention at the fees charged by the lender when closing a mortgage. These fees can ad thousands of dollars more to your debpt. These fees also can be verry confusing, as they came in different amounts and carry different names, depending the area you live in, the lender’s policy, the type of lender you choose and so on. Our advice? Before signing the contract, ask the lender for a honest, full estimate of the total costs and ask him to explain all the fees and terms you do not understand.
The interest rate
No matter whether you choose a fixed rate or a adjustable rate, you should search for the best deal and the lowest posted rate. If there’s a lower rate but at higher closing costs, you should calculate the total debpt to see if the lower rate is worth it. Moreover, when closing a deal for a variable rate, you have to understand the conditions in which it may change. There is always an index, and a margin that usually is set at 1,5 percent. Many variable rate mortgages have caps that protects you against drastic increases from year to year.
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