What is a mortgage?
A mortgage is a legal and binding contract that indicates that you have agreed to use your house as security for a loan made. Upon signature, the lender will hold the title deed of the property until after you pay all the money that you owed plus interest. If in case, you are not able to make mortgage payments, the lender has the right to sell the property.
What are mortgage payments?
To make it easier for you, the lender will give you opportunities to pay your loan in installment. Some will ask for a down payment, which is a lump sum that you have to pay in order to reduce the amount of money that you have to pay in a certain period of time. The balance of the loan will be divided according to the payment period stipulated in the legal contract. Often, people choose monthly payments as these are easier to the pockets. Others opt for annual payments.
What makes up the mortgage payment?
If you think that you only have to pay the amount that you loaned and nothing else, think again. There are a lot of additional costs in getting a mortgage. In addition to what you originally owed, which in banking terms, is called the principal, you also have to pay for the interest, the property tax held in an escrow account and hazard insurance to protect you from fire, storms, theft and even flood. And unless you have at least 20 percent of your home’s value paid for, you still have to get a private mortgage insurance, which can be really expensive. Some people avoid this by opting to pay for more than 20 percent in their initial down payment.
What are the types of mortgages?
As the name suggests, fixed-rate mortgages offers interest rates that will remain as it is over the entire life of the loan. The 30-year-fixed rate may be a good option for people who will be staying at their home for many years as the payments will relatively be the same. The downside, however, is that interest rates are at their highest level in this kind of scheme as compared to shorter payment scheme pf 20-year and 10-year-fixed-rate.
Another type of mortgages is the adjustable-rate. Unlike the fixed-rate that basically maintains the interest rate, the interest rate of this type is dependent on the market rates and economic trends. Often, the starting interest rate for this is a couple of percentages lower than the interest offered in fixed-rate but because of market dynamics, it can go several points higher in a course of a few years.
To protect you from skyrocketing interest rates, the terms of the mortgage contain a clause that limits the increase of interest rates to a certain level. This is called the caps. Often, the limit is set at a certain rise in interest per year.
The balloon mortgages is a variation of the fixed-rate mortgage except that at the end of a certain payment period, you are required to pay for the remaining balance of the loan, which is often called the balloon payment. This is a good deal especially for people who plan on selling the property and refinancing it again.
What other options are there for home-owners?
The government and the business sector offers a variety of loans that people can avail of to help them. Government loans, for instance, help lower the costs of mortgages.
One of the agencies that offer such is the Federal Housing Administration, which is part of the Department of Housing and Urban Development. The FHA offers a financing program for mortgages that has significantly lower interest rates. While the FHA will not in essence be paying for the loan, it will nevertheless serve as your guarantor. This makes people who do not really fit the traditional bill and requirements able to get a loan. Other agencies like the Veterans Administration and the Rural Housing Service, offers help to niche markets.
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