The decision to buy a
home can be one of the most valuable and important
investments one can make. Therefore it is important that
you are familiar with the mortgage process so that you
can wisely finance your home. Essentially, a mortgage is
just a loan that is used to finance the purchase of
property. The property itself is used as security to
ensure repayment until you have repaid the entire amount
plus interest.
There
are many types of mortgages on the market and finding
the right one can be an overwhelming project. The best
approach is to divide the process into manageable tasks.
Sit down with a mortgage professional and examine the
advantages and disadvantages of all available options to
determine which product is best suited to your current
situation and future plans.
How to Find the Right Mortgage
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Estimate how long
you expect to live in the house. If the answer is
less than three to five years, consider an
Adjustable Rate Mortgage (ARM), which typically
starts out with a lower rate. If you plan to live in
your new home longer than five years, a fixed-rate
mortgage offers protection against rising interest
rates. |
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Shop around for
mortgage rates. Banks, credit unions, and mortgage
companies all offer mortgages. Compare at least six
lenders in your area. |
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Add up all the
costs for each lender. Include fees, points, closing
costs, etc., to arrive at the total mortgage cost
for each lender. |
Mortgage Terms
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Amortization Period:
The period of time after which, if all monthly
payments are made on time and in full, the loan
will be paid out. |
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Down
Payment:
The amount of money provided by you, the
purchaser toward the price of the property (not
including legal fees or other acquisition
costs). |
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Interest
Rate:
The actual cost of borrowing money, charged as a
percentage of the outstanding amount owed.
Usually compounded on a monthly basis.
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Mortgage
Amount:
The total amount of money to be borrowed by you,
the purchaser, and applied toward the price of
the property. |
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Prepayment
Privileges:
The right of the borrower to pay out all or part
of the outstanding principal before it comes
due. |
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Term of the
Mortgage:
The period of time during which the loan
contract is active. During this period, you the
Borrower makes periodic payments (usually
monthly) to the lender and at the end of the
term the balance of the loan becomes due and
payable. |
