What You Need to Know About Mortgages

Written by on December 17, 2012 in Money - No comments | Print this page

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house-mortgageWhat is a Mortgage?

Most people are not financially capable of buying real estate up front; they will have to get financial assistance from a bank or institution.

In most cases you will not be able to borrow all the money you need at once, but be asked to put down a down payment. This is the amount that you will be contributing for the building or property and in effect reduces the amount that you have to borrow. Your down payment can thus influence the amount you will have to be paying per month for your mortgage.

After you have settled on an amount for your down payment you will apply for a mortgage for the rest of the money. The mortgage is then the money that you are borrowing that will have to be paid back to the bank or company that approved the loan. The amount that needs to be paid per month will be calculated by the bank or company with a certain system called PITI.

Types of Mortgages

Adjustable Rate Mortgages

With this mortgage option the rate will fluctuate according to the national market’s trends. This will mean that your interest rate will change and depending on your type of loan there will be certain caps in place to prevent you from paying more than your maximum interest rate amount. The terms of your mortgage will determine how regularly these rates will change.

Fixed Rate Mortgages

If you are looking for an option where you can pay a locked in interested rate, this would be your option. Fixed- rate mortgages allow you to pay the same amount each month no matter how much the real estate market is fluctuating. This type of mortgage can be very beneficial if the market is low, but if the interest rate falls, you will still be paying your initial amount and not saving any money. With your fixed rate mortgages you have different year options ranging from 15-years to 30-year payback time frames.

Balloon Mortgages

Balloon Mortgages offer a fixed lower interest rate than almost any other of the fixed rate options for 5-7 years. The so called ‘balloon’ payment is the amount that has to be paid after a certain time to pay off the loan entirely. Even though your monthly rate won’t be as high, there is an indefinite large sum of money to be paid at the end. This type of mortgage will be ideal if you manage to sell the property before the balloon payment has to be made.

Government Loans

These loans are especially designed to help lower income individuals to own property or their homes. The interest rate for government loans tend to be a lot lower and they are processed through institutions such as the rural housing organizations. Each low income group, veterans or individuals from rural areas fall into different categories for which you will have to qualify.

The Insurance Behind Mortgages

If your loan was accepted and you have started with a mortgage plan, this can be a very influential expense on your monthly payments. The company or bank who approved your loan will indefinitely be receiving money from you until you can pay everything back. Because they are in this kind of ‘power’ position you will have to take out some kind of insurance plan to protect yourself and your assets.

If you have cover for things like fire, theft, natural disaster this can lower the amount of insurance you will have to pay. This is where mortgage life insurance quotes come in. You might also have to pay private mortgage insurance if you own less than 20% of the property or company so if you make a bigger down payment initially, you will be able to pay less for mortgage insurance.

It’s important to do thorough research and have a look at your insurance options when it comes to mortgages. Taking out insurance for this kind of thing will also protect your family and depends when something should happen to you. The last thing you want to do is leave your family with the burden of a possible balloon payment.

These are just the basics of mortgages and the types of payment options you might inquire. Deciding which mortgage insurance to choose or which type of mortgage you want to apply for is something that you should really think through. Consider your time of real estate, your income, the probability of success as well as failure before making this big life decision.

This is a guest post.  Kate Simmons is a fresh graduate working for a company offering life insurance for mortgage protection. As an occasional blogger, she’s mainly interested in topics related to business, education and of course insurance.

Image courtesy of Salvatore Vuono / FreeDigitalPhotos.net

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