A Basic Guide to Mortgages

Buying a home is a huge deal, especially if this is your first investment in property. You wouldn’t purchase a pair of jeans that you know you can’t return without trying them on first, would you? You definitely shouldn’t choose the first mortgage lender that comes along without doing your homework. Luckily, there are plenty of online tools, like an easy-to-use mortgage calculator, that can help your search for the perfect mortgage go smoothly. Comparing various mortgages is the key to finding the best value for your home and the payment options you can live with.

What is a Mortgage?

A mortgage is a type of loan that a home buyer applies for when they want to pay the seller of the property in full. The mortgage comes from a lender. Instead of having to pay the seller, mortgage lenders pays the seller and then the buyer pays the lender back over time. In order to make this beneficial for the lender, the buyer has to pay the lender back what they borrowed plus fees and interest. Until the lender is paid back in full, they technically own the property. The buyer can occupy the home as if it’s already their own, though.

Not every mortgage is created equal and there are a lot of details to consider before choosing to go with a specific lender. The amount you’ll have to pay every month in principal and interest is a huge consideration, especially if you’re on a tight budget. Also, there are different types of interest rates to compare and they can vary depending on the lender you’re speaking with.

Types of Mortgages

There are various types of mortgages and home loans available. What is right for one person may not be right for another, and figuring out the ideal mortgage for your situation isn’t always easy. There are both short-term and long-term mortgages available, depending on the buyer’s financial situation and how long the buyer plans on staying in the home. There are also fixed mortgages and adjustable mortgages, which refer to the type of interest rate that is applied to the mortgage.

Some homeowners opt to take out a second mortgage when their home already has a first mortgage. Second mortgage loans are often given by the lender of the first mortgage. Before getting a second mortgage, three important factors have to be taken into account:

1. First mortgage’s outstanding amount
2. Property’s market value
3. Applicant’s credit rating

All three factors have to considered in order to determine how much can be given for the second mortgage.

How Can You Find the Best Mortgage Rates

In order to find the best mortgage rates today, you should become familiar with the terms you’ll hear most often. “Closing fees,” “points” and “APR” or annual percentage rate are terms you’ll hear over and over again as you search for the right mortgage. Mortgage companies can negotiate these fees, along with others, to get the best home mortgage rates.

Experts advise against opting for the first low-rate mortgage you find. What looks like the cheapest option at first can quickly become expensive as hidden fees are applied. However, the law requires that fees are included in the APR. The best way to find the lowest mortgage rate is to compare the APR, which is a true reflection of the cost of the mortgage. Since the APR isn’t often advertised, you’ll have to specifically ask for this information.

How Do Mortgage Rates Differ from Lender to Lender

It can be difficult to narrow down your choices of mortgage interest rates because they can change on an almost daily basis and they also vary from lender to lender. The biggest differences in current mortgage rates is between fixed and variable interest rates. The type of mortgage you get depends on what the lender is offering.

A fixed mortgage rate means that the amount you pay in interest won’t go up or down as time goes on. The interest is applied to the mortgage and then it stays the same until the total amount due is paid in full. A variable mortgage means that the interest rate can fluctuate as time goes on. In some cases, the rate is fixed at first, but then changes as you make more payments. In other cases, the interest rate may be variable at first and then become fixed as you start to pay down the mortgage.

Choose the Best Mortgage Rate

Many people end up paying more in interest than their home is actually worth. That’s why it’s so important to carefully choose a mortgage rate that’s both ideal for your situation and worth it in the end. First, you have to figure out how much you can afford to pay toward your mortgage on a monthly basis. Then, you have to find a lender who can offer you a loan in line with your realistic payment schedule. At the same time, though, you have to compare interest rates so that you don’t end up paying a lot more in interest than the house costs. By using an online home mortgage calculator, it’s pretty simple to compare rates offered by different lenders.

The type of interest rate you choose to go with has a lot to do with your financial situation, too. Are you in a position where you could handle a changing interest rate? Some people know that they won’t be able to put more money toward their mortgage in the near future, in which case a variable interest rate may be too risky. Also, don’t forget to estimate your closing costs into how much you’re able to spend on a house.

Factors to Consider While Choosing a Mortgage

There are several factors to take into consideration when choosing a mortgage, including:

1. Down Payments: The more money you put down on your house loan, the less likely it is that you’ll have high interest rates. If you put down enough of a deposit, you won’t have to get Mortgage Insurance.

2. Fixed Rate Mortgage or Adjustable Rate Mortgage: Some interest rates never change over time while adjustable interest rates can vary from month to month.

3. Interest rate: The interest rate is how much you’ll have to pay on top of the principal monthly payment.

4. Length: The length of the mortgage will be determined based on how much you put down, how much you can pay each month and how long you plan on living in your home.

5. Monthly mortgage payment: Every month, you’ll have to pay a certain amount to your mortgage. At first, your monthly payments will be primarily interest. Over time, the amount of money you pay in interest will go down and more of your payment will be applied to the principle.

6. Points: Mortgage points are the term used for specific charges and fees that have to be paid before you can get the mortgage.

How to Apply for an Online Mortgage

In today’s world, it’s so much easier than it used to be to research mortgages, use a mortgage payment calculator, get a mortgage pre approval and even apply for a mortgage online. Your first step is to do a generic search for online mortgage lenders. Keep in mind that some traditional mortgage companies that you can visit in person also have online tools to apply over the Internet. Chances are you’re going to find some mortgage companies that you’re interested in but that you’re not familiar with. Do extra research on these companies by searching for feedback from other people who’ve worked with them. When you’ve narrowed down your list of mortgage companies, make sure to have all of your financial information nearby. You’ll need the following information:

• Earnings
• Investments
• Outstanding debt
• Savings
• Varying income sources

Then, you’ll be able to complete the online application, which usually takes just a few minutes. Then, you’ll either be contacted by someone who will go over your mortgage options or you’ll find several different rates from a variety of companies. For example, websites like LendingTree.com return various results from multiple mortgage lenders.

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