The Basics of Home Mortgages
Monday, November 13, 2006
Buying and owning a home is the American dream for many people,
and has been for decades. Being able to say that you own your
house and your plot of land is a big accomplishment in a
person's life. Owning a home, or buying a home is seen as one of
the best financial decisions that a person can make as well. When
you rent, you are simply paying off someone else's mortgage for
them and allowing them to acquire equity. When you choose to
purchase a home, you will reap the long-term benefits of
acquiring equity and actually owning the home.
Once you find a home that you want to buy you will most likely
need a loan to pay for it. This type of loan is most commonly
referred to as a home mortgage. When looking for a mortgage
lender you will have many different types of lenders to choose
from. You can choose from savings and loan associations,
commercial banks, mutual savings banks, and mortgage companies.
The mortgages these institutions offer will have varying
features.
There are many factors to take into consideration before deciding
where you to get a mortgage loan. Remember, this is a loan for
potentially hundreds of thousands of dollars and a loan that you
might be paying on for the next 30 years. You want to make sure
that you spend a good deal of time and energy researching the
best mortgage option available to you.
First of all, you have to be approved for a loan by the lending
institution. This will depend on the amount of your income and
your credit history. The lending institution will then tell you
how much money they are willing to loan you to purchase a house.
Once you have been approved you will want to shop around for the
best interest rate possible. It may not sound like much on the
surface, but a variation of just a few points in the interest
rate can quickly add up to tens of thousands of dollars over the
life of a 30-year loan.
The interest rate can be reduced if you are able to make a large
down payment on the house. The more money that you pay out of
your own pocket on the house, the less you are borrowing, and
hence the less interest you will have to pay over the life of the
loan. There are three types of interest rates that can be applied
to a home mortgage loan. These are a fixed interest rate, a
variable interest rate, and a combination of fixed and variable
interest rates.
A fixed interest rate means that you will have one interest rate
over the entire loan period that will never change. A variable
interest rate means that the amount of interest you are paying on
the home will vary with the federal interest rate. A combined
interest rate loan, also known as a convertible mortgage, will
vary with the lenders rules.
A fixed interest rate is typically a higher rate to start out
with. Let's say for example that the fixed interest rate is 7%.
The benefit of this is that you know exactly how much you are
expected to pay every month and this amount will not fluctuate
based on what the federal interest rate is.
A variable interest rate will generally start at a lower rate,
say 5% for example. This sounds like a good deal, and it may very
well turn out to be. The primary factor here is what the federal
government will do with interest rates over the life of your
loan. If five years from now the federal interest rate increases
to 8% then you will be expected to pay more on your monthly
payments. This variable rate can save you money if the federal
rate stays lower than what the fixed rate loan would have been
for. However, if the variable interest rate increases, then you
will be paying more, at least until the federal interest rate
changes directions again.
A combination loan will incorporate the best of both of these
interest rates depending on the lenders rules and requirements.
You will want to ask your individual lender about how these work
at their particular institution.
Once you have decided upon a lender and the type of interest rate
that is best for you and your situation you need to be sure to
review every bit of the paperwork closely. This is done for your
protection and will take some time. It may be in your best
interest to have a trusted friend or advisor review this
paperwork with you. You want to make sure that there will be no
surprises or hidden fees that you will have to pay on the
mortgage. Again, remember that this will be a very long-term loan
and that the details are extremely important.
If you have any questions at all about the terms of the loan, do
not hesitate to ask the lending institution before signing. Any
lender worth doing business with will be willing to answer all of
your questions and will be upfront and honest with you. If the
lender that you have selected shows any hesitation about clearly
explaining the details of the loan, then you should seriously
consider finding a different lender.
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Ethan Deville writes about finance for PenCircles.com and
http://www.PersonalHomeLoanMortgages.com - who provides mortgage
information to borrowers. They also help consumers by providing
http://www.personalhomeloanmortgages.com/mortgage_calculator.asp
mortgage refinance calculators and local home loan rates
http://www.personalhomeloanmortgages.com/mortgage_rates.asp
Visit PersonalHomeLoanMortgages.com to find national and local
mortgage brokers and to learn more about your mortgage options.
posted by Dennis Cheesman @ 5:50 AM,
