For many people, buying their first home is one of the final
parts of the transition to adulthood. However, before you take the
plunge and purchase a house of your own, it's extremely important to
know the basics. One of the most important parts of buying a home is
securing the necessary financing, which usually comes in the form of a
mortgage loan.
A mortgage loan is a form of security consisting of a promissory note and encumbrance. The promissory note provides evidence of the existence of the loan itself, while the encumbrance places an attachment on the property that is being purchased. This means that if you default on the loan, the bank or other creditor from whom you have borrowed money has the right to seize that property. In most cases, this means that the bank can foreclose on your home if you fail to make your loan payments.
When obtaining financing for a mortgage loan, it is important to pay close attention to the specific terms of the loan. Not all mortgages are created equally, and the terms can vary considerably from one loan to another. This can affect how easily you can make your payments each month. For example, some loans have fixed interest, whereas others have fluctuating interest that varies based on your income or how many payments you have made. Fixed-interest loans are generally much more stable and easier to pay. The type of financing that a lender will be able to obtain depends on a number of different variables, including the lender's credit score and the overall state of the housing market at the time.
In addition to the interest, the loan's term can also vary greatly. The term is the total amount of time that the lender will have to repay the entirety of the loan. Some loans have balloon payments, which means that the term will expire before the balance has been fully paid off. This leaves a balance due once the loan matures, which is referred to as a balloon payment because of its large size.
There are two basic types of mortgages: fixed rate and adjustable rate. In the United States, a fixed rate mortgage is much more common, but this is not necessarily the case in other parts of the world. When you take out a fixed-rate loan, the interest rate will remain fixed for the entire length of the loan. This means that the periodic payment will also stay the same. Thus, you will be paying the same principal and interest the entire time you pay the loan, although ancillary costs (such as property taxes) can, and often do, change.
In contrast, adjustable-rate mortgages feature interest rates that fluctuate according to a predetermined market index. Generally, the interest rate will remain fixed for a certain time period, then increase or decrease according to market conditions such as debt rates and the yield curve. This transfers some of the risk from the lender to the borrower.
A mortgage loan is a form of security consisting of a promissory note and encumbrance. The promissory note provides evidence of the existence of the loan itself, while the encumbrance places an attachment on the property that is being purchased. This means that if you default on the loan, the bank or other creditor from whom you have borrowed money has the right to seize that property. In most cases, this means that the bank can foreclose on your home if you fail to make your loan payments.
When obtaining financing for a mortgage loan, it is important to pay close attention to the specific terms of the loan. Not all mortgages are created equally, and the terms can vary considerably from one loan to another. This can affect how easily you can make your payments each month. For example, some loans have fixed interest, whereas others have fluctuating interest that varies based on your income or how many payments you have made. Fixed-interest loans are generally much more stable and easier to pay. The type of financing that a lender will be able to obtain depends on a number of different variables, including the lender's credit score and the overall state of the housing market at the time.
In addition to the interest, the loan's term can also vary greatly. The term is the total amount of time that the lender will have to repay the entirety of the loan. Some loans have balloon payments, which means that the term will expire before the balance has been fully paid off. This leaves a balance due once the loan matures, which is referred to as a balloon payment because of its large size.
There are two basic types of mortgages: fixed rate and adjustable rate. In the United States, a fixed rate mortgage is much more common, but this is not necessarily the case in other parts of the world. When you take out a fixed-rate loan, the interest rate will remain fixed for the entire length of the loan. This means that the periodic payment will also stay the same. Thus, you will be paying the same principal and interest the entire time you pay the loan, although ancillary costs (such as property taxes) can, and often do, change.
In contrast, adjustable-rate mortgages feature interest rates that fluctuate according to a predetermined market index. Generally, the interest rate will remain fixed for a certain time period, then increase or decrease according to market conditions such as debt rates and the yield curve. This transfers some of the risk from the lender to the borrower.
