Mortgage Financing Information: Your First Mortgage Loan
If you have every taken out a mortgage to purchase a home then you know that you end up paying more in the end to cover the interest costs than you actually do for the actual principal amount. If you haven't ever bought a home, then here is an example for you. On your mortgage loan you borrow $125,000 at 8% with a 30-year term. Once you have completed all payments you will have paid over $205,000 in interest plus the original $125,000 principal amount. This means that your $125,000 homes really costs you $330,000.
Once you realize what these numbers add up to you quickly realize how important it is to get the right loan at a good interest rate. Your first home purchase will be one of the biggest financial decisions that you will ever make which means that you need to do your homework and know exactly what you will end up paying.
Let's start with the basics. Mortgages are not loans. When you take a loan then the lender gives you something, but when you take a mortgage then you are giving the lender something. When you are taking your mortgage then you need to know what is being offered on the market.
If this is your first mortgage loan then you may want to stick with a fixed rate. When you have a fixed interest rate then you will keep paying the same rate throughout your loan period. If you have a fixed rate mortgage then you will have a predetermined monthly payment. Your payment will never change so you can easily budget your monthly mortgage payment. Another bonus of a fixed mortgage rate is that you can usually have a very low down payment which can be as low as 5% of the purchase price on the home.
Another type of mortgage loans is the adjustable rate mortgage loan. If you think that mortgage rates are going to go down then you may want to choose an adjustable rate mortgage loan. This means that your payments could be less in the beginning if the mortgage rates are low. However, the rates will change throughout the period of your mortgage which means your monthly payments will constantly fluctuate.
The last type of mortgage loan is the balloon mortgage loan. This is generally a good option if you don't plan on keeping your house for a long time. This type of loan helps to keep your interest rates very loan in the first few years, but then a lot is owed after about five years. If you still own the house at this time you may have to get another loan to pay the balloon payment if you have not planned accordingly.
When you are searching for your new home it is very important that you educate yourself about the different types of loans that are offered. Be sure that you plan accordingly for what you can actually pay.