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What’s A Mortgage?
By: Max Plata
Buying a home is an exciting prospect. Choosing the location, the floor plan and
finally sealing the deal. There is an important element that exists in most home
sales and that is the mortgage.
Whenever you purchase a home and you don’t pay the full price in cash, you have
to obtain financing. This type of financing is a mortgage. When you take out a
mortgage you are using the property as collateral. If you fail to repay the
mortgage on the terms you agreed to, the bank or lending company has the right
to take over possession of your property. Therefore it’s very important to
choose a mortgage that will fit into your budget.
There are several types of mortgages available today. One of these is the fixed
rate mortgage. When you take out a fixed rate mortgage it means that you are
taking out a mortgage for a specific amount of time, usually 10, 15, 20 or 30
years. When you apply for the mortgage loan, you agree to an interest rate. This
interest rate will be in effect for the life of your mortgage. Your monthly
payments will be set and you will repay the lending company for the agreed to
term.
Another type of mortgage is the adjustable rate mortgage. With this type of
mortgage the interest rate applies for a shorter period of time. Once that time
has passed, usually a year, the interest rate in effect at that time is applied
to the mortgage.
If interest rates are fluctuating when you are considering purchasing a home, it
is advisable to consider an adjustable rate mortgage. The reason is that if you
lock yourself into a fixed rate mortgage and then interest rates plummet, you’ll
be paying much more than you would have otherwise.
When you go to apply for a mortgage the loan officer will explain in detail the
differences between the two kinds of mortgage. They will also advise you as to
which one is better for you in terms of your financial goals.
If you are already a homeowner and are older there is another type of mortgage
that applies to you. It’s called a reverse mortgage. A reverse mortgage is when
the homeowner wants to enjoy some of the equity they have already acquired in
their home. Each month the homeowner is paid any amount of money. This money is
charged interest. Once the homeowner passes away or sells the property, the bank
takes the total of the reverse mortgage payments and any additional interest out
of the proceeds of the home’s sale.
This works very well for retired people who want to enjoy the rest of their live
without having to worry about money. They are still able to live in their homes
and at the same time, the reverse mortgage allows them to have the extra cash
they wouldn’t have otherwise.
Mortgages are essential to anyone buying a home and with some careful thought
and consideration you can choose a mortgage that saves you money and allows you
to own your own home that much sooner. Consult with a mortgage professional and
with their advice and knowledge, you’ll have the mortgage you need.
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