Mortgage Home Loan Basics

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After you’ve decided to purchase a home, you need to decide on the best home loan for you. A home loan, or a mortgage, come in many forms. Considering that a home is a substantial purchase, it is important to research how you will finance this purchase.
Before you get overwhelmed with the tremendous amount of home loan products available, here are the basic elements of a home loan. Your mortgage payment will consist of these four pieces.

• The principle, the amount that you are borrowing for the purchase of your home.
• Interest, what it will cost you to borrow the money, this is a percentage of the amount you borrow.
• Taxes, most lenders will set up an escrow account and hold your annual taxes until payment is due.
• Insurance, in most cases, when the borrow puts down less than 20% the lender requires private mortgage insurance (PMI).

Now that you know the basic elements of your home loan, it’s time to discuss some basic loan types. You will need to decide if you want a fixed mortgage rate (FRM), adjustable mortgage rate (ARM), or a balloon mortgage. An easy way to decide which loan type is best for you it to evaluate how long you plan to stay in the home and how the current interest rates are fluctuating.

Fixed Rate Mortgage

The fixed rate mortgage home loan has it’s interest rate on the loan fixed over the life of the loan. This means that your interest rate will not change from the day you acquire the property until the day you pay the property off and own it outright or sell the home. If you are shopping for a fixed rate and are planning to stay in the home for quite some years, be assured that you are getting the lowest rate possible.

Adjustable Rate Mortgage

The adjustable rate mortgage has it’s interest rate adjusted every so often. Usually, the mortgage rate will be based on something such as the prime rate. When the prime rate (ex prime = 5.75%) goes up or down, then your mortgage will follow. The increment in which your mortgage will adjust is based on which type of ARM you choose. Some ARM’s adjust every year, and some adjust every month.

Usually, people choose ARM loans because it will yield the lowest payment possible per month. Be careful that your ARM home loan doesn’t put you in a bad situation down the line.see the post from

Balloon Payment

A mortgage that has a balloon payment will have steady payments for a certain amount of time and then when a certain date is reached a significantly large balloon payment is due. Sometimes this balloon payment could even be as large as paying off the rest of the loan, and this could be many thousands of dollars. If you have to get a home mortgage loan that has a balloon payment in it, be smart enough to schedule this payment far enough down the road so that it will never be reached and you would have maybe sold your property by then.

Prepayment Penalties

Home Loan

Some mortgages come with prepayment penalties. This prepayment penalty would come into effect when a person would sell their home before a certain time, and they are charged whatever penalty the mortgage company states in their documentation. Mortgage companies tend to do this because they don’t like it when people buy properties and then sell them quickly. A huge amount of their profits is made over the life of the loan with the interest that is accrued.

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