If you are planning to buy a home in the future then it is necessary and highly recommended to brush up on your knowledge about mortgages and home loan products. Understanding certain key essentials, and the process involved during the home buying process would be a great help when making the leap towards your dream home.
Here is a list on what you need to know about mortgages, which could help you in the coming years
What’s A Mortgage?
A mortgage is a loan that a bank or lender gives you to help finance the purchase of a home. It is a good practice to borrow approximately 80% of the value of the home or less, if you can. The home you purchase will act as collateral in exchange for the money you are borrowing to finance the mortgage for a home. A mortgage payment is normally composed of four components: principal, interest, taxes and insurance, and sometimes includes additional costs such as mortgage insurance or homeowners association fees. The payment is typically made on a monthly basis.
Understand Mortgage Loan Factors
Type of Home Loan
Decide the home loan type that fulfills your requirements and ensures you borrow an amount that you can repay on time. The amount you borrow entirely depends upon your expenses, income, current mortgage rates and down payment.
Mortgages Features
There are various home loan types, such as fixed rate mortgages (FRMs) that come with rates that do not change. You can also opt for an adjustable rate mortgage (ARM) that is a type of loan where the interest rate may go up or down. Many ARMs start at a lower interest rate than fixed rate mortgages. This initial rate may stay the same for months, one year, or a few years. When this introductory period is over, your interest rate will change and the amount of your payment is likely to go up. Part of the interest rate you pay will be tied to a broader measure of interest rates, called an index. Your payment goes up when this index of interest rates moves higher. When interest rates decline, sometimes your payment may go down, but that is not true for all ARMs. Some ARMs set a cap on how high your rate can go and some may limit how low the rate can go.
The Hybrid ARMs mortgage combines features from an adjustable rate mortgage (ARM) and a fixed mortgage. It begins with a fixed rate for a specified number of years, but then changes to an ARM with the rate changing once every year for the rest of the term of the loan. They are available at different rates and introductory periods, such as 3, 5, 7, or 10 years.
Mortgage Rate
The interest rate is the cost you will pay each year to borrow the money, expressed as a percentage rate. It does not reflect fees or any other charges you may have to pay for the loan.
Chances are that lenders might offer discount points to decrease your mortgage rate of interest, whereas one point is almost equal to the one percent of your loan amount. If your loan amount is around $150,000 then your point cost would be around $1500. Choosing to pay discount points depends on the time you plan to keep the home, the longer you plan to stay, the more likely you are to get the benefits by paying points.
Term
The mortgage term depends upon the years needed to pay the loan off, and most people are familiar with the 15 and 30-year loan, but now mortgage terms come in 5, 10, 20, 25, 40 and 50 year terms. Typically, the shorter the term the lesser the interest you would be paying, and you can gain home equity faster. Longer terms typically come with a lower payment and may allow for a higher purchase price.
Buying or refinancing a home can be confusing, but tips on what you need to know about home mortgage loans will help to get you a competitive deal and should also save you money.
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