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 mortgage company or 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 mortgage 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 will 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 homes 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.