If you’re like most people, the word “mortgage” probably conjures up all sorts of complicated images and concepts. So, what is a mortgage? If you’re thinking about buying a home or taking out a mortgage, it’s important to understand all of the ins and outs of your loan and we’re here to break it down for you.Verify my mortgage eligibility (Sep 30th, 2023)
What is a Mortgage?
A mortgage is a loan used to buy a house. The security for the loan is the home itself, which means that if you default on your payments, the lender can foreclose and repossess it. Mortgages are generally paid off over 15 to 30 years with monthly installments sent to the lender.
In addition to the loan amount, you will be charged interest on the loan. The rate of interest is the cost of borrowing money and varies based on a variety of market factors as well as your credit score.
So How Does it Work?
When you take out a mortgage, you are borrowing cash from a lender in order to acquire a property. Because the loan is secured by the house, if you default on it, the lender can foreclose and reclaim it. You’ll usually make monthly payments to the lender, with each payment being applied equally to the principle and interest amounts of your loan.Verify my mortgage eligibility (Sep 30th, 2023)
You should shop around for a mortgage before making a selection. Make sure to compare the interest rate, points, and any other costs associated with the loan throughout several lenders.
Types of Mortgages
There are two different types of mortgages: fixed-rate and adjustable-rate mortgages. The interest rate on a fixed-rate mortgage does not change over time. Fixed-rate home loans account for the vast majority of residential borrowings. With adjustable-rate mortgage, or ARM, the interest rate can fluctuate at regular intervals based on the terms of the loan document. Your monthly payment may go up or down depending on the interest rate adjustments.
Credit Score Needed for Mortgage
Although a good credit score enables you to receive better loan terms, bad credit does not prevent you from receiving one. If your credit score is below 580 and you put down 10% cash, you may be eligible for an FHA loan. To raise your credit rating, pay your bills on time and reduce your debt-to-income ratio by paying down your credit card debts. For more information on how credit is important for home buyers check out our other articles!Verify my mortgage eligibility (Sep 30th, 2023)
What Does a Mortgage Payment Include?
Over a set amount of years, you’ll pay back a mortgage in monthly installments. You’ll make payments each month on part of the debt, as well as interest and possibly additional fees. These are some of the components that go into a mortgage payment.
- Interest – This rate determines the sum you'll pay the lender in exchange for borrowing the money.
- Taxes – The property tax bill is based on a percentage of the assessed value. This can change from year to year depending on local taxes and the value of other homes around you.
- Insurance – Mortgage insurance protects the lender from the risk that you will default on the loan. PMI is a private mortgage insurance, or a form of insurance for conventional loans, and FHA mortgage insurance is an FHA-insured home loan’s requirement.