A Beginner’s Guide to Mortgages
Mastering financial responsibility is one of the biggest goals for a lot of people. Buying a property will probably be the most expensive purchase one might ever make in their life. It’s a big decision that should be made very carefully.
Buying a house has become expensive with the average price of homes reaching $266,000 this spring. Not everyone will have that amount of money just sitting in their bank. That is why most people need to take out a mortgage to finance the property.
But what exactly is a mortgage?
What is a Mortgage?
Simply put, a mortgage is a specific type of loan taken out to buy a house or a plot of land. This type of loan is different from others in three different ways.
- Mortgages have a longer-term.
In general, mortgage services will have a term that will last for about 25 years. This can be shorter or longer depending on various factors, including the amount deposited
Terms lasting for 30, 35, and 40 years have become popular, especially with first-time buyers. The reason for this is that long-terms have a lower monthly payment, which makes the mortgage more affordable. But this also means that you will be saddled with higher interest rates.
- A mortgage is secured against the property.
The mortgage is secured against the value of the house or property until it is completely paid. Mortgage services have the right to repossess the property if a buyer can’t keep up with the repayments.
- Mortgages don’t cover the full purchase price.
However, a majority of mortgage services won’t cover the full purchase price of the property. Buyers will have to pay a portion of the price with their own money through the mortgage deposit.
Lenders usually require buyers to deposit at least 5% of the purchase price. The deposit amount matters. If a buyer deposits a larger sum, they can expect their mortgage terms to be better.
What are the Types of Mortgages?
Choosing the right type of mortgage is an important decision. There are various types of mortgages, and each one is designed for different financial situations.
Long-term vs. short-term
The length of the loan term mortgage will depend on how much payment a person can afford every month. Long-term mortgages have lower monthly payments, while short-term mortgages have higher monthly payments.
The length of the term will also affect the interest rate of the loan agreement. Buyers who choose longer mortgages will pay more interest over the life of the loan. Those who choose to go short-term will pay less interest.
Fixed interest rate vs. adjustable interest rate
A fixed-rate means that buyers will pay the same interest rate throughout the loan term. Monthly payments are predictable. This makes it a great selection for homeowners who plan to stay long-term.
An adjustable-rate mortgage, on the other hand, has a set interest only for a certain number of years. The rate can be adjusted periodically based on the index after the set year. This mortgage is a great choice for those who only plan to stay for five years or less.
Buying a property or home can be an impossible dream with how expensive it has become. It doesn’t have to be this way.
EnTrust Funding provides mortgage services so people can purchase their dream house. With the right mortgage, homeowners can turn their new home into a source of happiness without the monthly stress.