Mortgage Basics

You are ready to embark on the world of homeownership. It’s the opportunity to make an investment into your future, to amass a substantial net worth. Experts agree that, if executed properly, homeownership is the individual’s single largest source of wealth. Investment into a house increases with time as property values appreciate. However, purchasing a home comes with a cost. That cost is neatly packaged in a monthly mortgage. A mortgage is a legal contract for a financial loan to purchase a home. There are several parts to a mortgage: the collateral used to secure the loan, the principal or interest payments and taxes. The collateral is the property or assets offered to the lender to secure the loan. The principal is the amount borrowed and the interest is the amount paid to the lender for the loan. Researching and understanding types of mortgages available and associated costs will help position one to make an educated and financially rewarding decision.

Fixed-Rate Mortgages

Fixed-rate loans offer predictable, steady payments throughout the life of the loan. It is the traditional option used to finance a home and allows for easier budgeting and planning with fixed interest rates. However, the initial monthly costs are typically higher than adjustable rate mortgages. The principal and interest are calculated into the monthly payments. The amount of time the loan is paid off is referred to as the loan’s term. There are several variables within a fixed-rate mortgage in regards to the loan’s term.

30-Year Fixed Rate Mortgage

The 30-year fixed rate mortgage means the borrower has 30 years to pay the mortgage back at a fixed interest rate, with the same payment over the life of the loan. The 30-year fixed-rate loans are a smart choice for those who have a steady source of income and intend to own their home for a long period of time.

15-Year Fixed Rate Mortgage

The 15-year fixed rate mortgage allows one to own a home in half the time of a 30 year rate, with much lower interest rates over the life of the loan. However, the monthly costs are substantially higher due to the shorter term. This is an excellent choice for those that can afford the higher monthly payments. Qualifying for this loan is a little more difficult requiring a higher income.

Adjustable Rate Mortgage

Adjustable rate mortgage, also referred to as a variable rate mortgage, is a loan where the rate of interest is subject to change. The introductory interest rate is lower for a set amount of time. After the time period expires, the rate increases based on current market rates. Interest rates historically increase over time, so while the initial payment is low, the monthly payment significantly increases over time. Qualifying for a variable rate loan is easier and is especially valuable when interest rates are high. This loan is helpful for those who do not expect to live in a home long term, or for those who expect to pay off the home quickly.

For more information on mortgage rates and loans, contact Dave Kevelighan. With over 19 years of lending experience, Dave provides some of the best rates, pricing and services in the mortgage industry. Call today.