Home Loans And Mortgage

What Kind Of Mortgage Do You Need? There are many types of home loans and mortgages and sometimes it can appear down right confusing for many consumers who are making the single largest purchase that many will make in their life times. A home is important for everyone and when you are making this purchase there are many items to consider from the lot your home will be built on to the decorations and design. In fact there are so many different decisions to be made that some people find it overwhelming and they have not even got to the financing!There are many types of and sometimes it can appear down right confusing for many consumers who are making the single largest purchase that many will make in their life times. A home is important for everyone and when you are making this purchase there are many items to consider from the lot your home will be built on to the decorations and design. In fact there are so many different decisions to be made that some people find it overwhelming and they have not even got to the financing!Your mortgage is almost as important as the home itself since the mortgage will determine your monthly payments and as a result how much money you have available for the other things in life. Many homeowners express the fear that they will be house bound simply because after they have paid the mortgage and the taxes, they do not have a lot left for the extra things that we all enjoy in life. So what are the financial considerations that must be considered when you are looking for a mortgage?

Your Mortagage Basics
First the basics! The mortgage payment is based on three variables, which are very important. These are the principle, the interest rate and the term of the mortgage. The term is the number of years it will take you to repay the mortgage in full. The interest rate is the rate at which interest on your mortgage is calculated and the principle is the full amount of money that you will be borrowing to finance the purchase of your new home. All variables are very important and will determine not only your monthly payment, but also the total amount of interest that you will pay over the life of the mortgage. Basically you want to repay the mortgage as fast as possible at the lowest interest rate that you can negotiate.

There are also home loans, which are loans that are the same as any other loan, except that you may offer your home as collateral for the home loan. Sometimes these are also called secured home loans. In exchange for a lower interest rate you agree to place your home as collateral for your loan. If you for some reason fail to repay the loan, the lender has the right to sell your home to recover the amount that you still owe. Obviously this is something that you want to avoid at all costs.

Mortgage Insurance
Aside from ensuring that you have the lowest interest rate possible, there are other features that may be of interest to consumers. Mortgage insurance ensures that if the insured passes away, the mortgage will be repaid. Various repayment options also are available. Most mortgages will allow an extra payment once a year and up to as high as 10% of the mortgage. If you can pay this extra payment the bonus is that your mortgage will be paid off more quickly and you will pay significantly less interest.

Mortgage Interest Rates And Your Credit Rating
Your credit rating is very important when it comes to establishing a mortgage interest rate. Do not be afraid to shop around to find the best terms and interest rates. Even a half percent improvement can make significant difference over the life of the mortgage saving you thousands of dollars. If you are renewing a mortgage, always ask for a reduction in the interest rate offered, especially if you have always paid your payments on time. The worst that will happen is that they say no, however many times the lenders will offer a discount on the interest rate for their best customers.

Bridge Financing Mortgages
Finally consumers who are selling one house while they are purchasing another will need what is called bridge financing. This is a loan or mortgage that provides you with the financing you need to place the down payment on your new home while you wait for your current home to sell. The same rules apply of course to negotiating interest rates and terms. Always comparison shop and don’t be afraid to ask the lender for a better rate. A word of caution is necessary about bridge financing. Many people have been confident about selling their home, only to find out that sometimes it takes much longer than they thought it would to sell or their home sells for less than they thought it would. Making payments on two homes at the same time can be financially difficult for most consumers, so while bridge financing can be attractive, you will want to evaluate the risks as well.

Don’t Be Fooled By Finance Industry Terminology
“A loan is a loan is a loan“, no matter what they are called. A bridge loan, an auto loan, an upgrade loan or whatever other name the lenders use, at the end of the day is a loan with principle, a repayment term and an interest rate. Don’t be fooled by fancy names, which are really just marketing gimmicks to make you think these loans are special for the purpose that you considering. There are really only two major differences. One is a secured loan much like a mortgage and the other is an unsecured loan, which is only guaranteed by your word and signature. Secured loans often have better interest rates.

Mortgage And Home Loan Summary
In summary, as you are making your decision to purchase your home and are considering a mortgage or a home loan, stay focused on the interest rate that you will be asked to pay and negotiate the lowest possible interest rate you can. Next based on this interest rate, select a repayment term that allows you to repay your mortgage as quickly as possible without making the monthly payments so high that you are housebound as described earlier. Many banks and lenders will use a figure of 35% of your income as a reasonable amount to cover your monthly payments and your taxes. This figure is a good guide, however if you are including two incomes, you will need to evaluate if the 2nd income will be available though out the life of the mortgage. If not you may want only include one income in this calculation.

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