Funding a house entirely by one person in today’s world not an easy job. A mortgage helps in achieving this goal. It is basically a loan that the borrower uses to purchase a home or any piece of real estate, which they have to pay back over a period of time. A mortgage is simply three components: – down payment, monthly payments and fees. Also, the property itself is generally used as a collateral backing up the loan.

1. The Down Payment-

It is the initial payment that is made to secure a mortgage. This is inversely proportional to the interest rates and fees. So, more the down payment amount leads to less interest rates and less fees. You will be better off and you will write-off your mortgage early.

2. The Monthly Payments-

This is the amount that you pay monthly over the length of the loan. This includes the partial payment of principle of the loan and interest as well. There are also other fees included in this payment.

3. The Fees-

There are different costs that have to be paid the get the loan in the first place.

This is the basic model of a mortgage. Also, different interest rates are offered to different individuals based on house or the property they are buying, defaults on previous payments, their credit history and also their income stream.

There are different types of mortgages (jumbo mortgage, government-insured mortgages, interest-only mortgage) that are generally used by sophisticated players in the market. Knowing about these will add to your knowledge but for an individual the best mortgage is conventional mortgage and rest he/she has to choose between the type of interest rate- fixed and adjustable interest rate.

1. Fixed Interest Rate-

In this the interest rate stays same throughout your loan tenure. So, your monthly payments won’t be changed in future. This is known as traditional mortgage. In low interest rates in the market, this could be beneficial as you will be paying a low interest rates in the future even when the market interest rates are higher. This is good for risk averse people.

2. Adjustable interest Rate-

In this the initial interest rate is fixed which is lower than the market interest rate. This could change with the market interest rate in later years and could increase the risk if the interest rates increase steeply. Fortunately, they have caps of the maximum rise in interest rate. This interest rate is good for shorter duration loans but less affordable for long term loans.

For actually getting the loan, all you have to do is to apply to different mortgage firms and choose the best one for you depending on your choice type of interest rates, the firm that charges minimum fees, their repayment tenure and the interest rate they offer. So, happy buying!

If you find this informative, do tell me in comments.

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Published by Vanshaj Bindlish

Writing about the stuff that I consider worth sharing with you.

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