The Basics Of Mortgages
A mortgage is a loan that is availed from a lender such as a financial institution, credit union, or bank to buy a property, residential or commercial. The base of a mortgage is that if the borrower does not pay back the sum borrowed the lender will take away the property and recover the money by selling it.
A mortgage has two main aspects the principle or capital, that is the sum borrowed and the interest charged on the borrowed sum. In a mortgage what happens is that the property purchased is kept as collateral by the lending institution.
The basics of mortgages are:
1. A mortgage is amortizing, which means monthly payments made towards the principle amount borrowed and interest due will pay back the loan in a fixed tenure of time.
2. The tenure of a mortgage loan is usually 10, 15, 30, 0r 40 years and the length of time is determined depending on the age and capabilities of the borrower. However a mortgage must be paid back in say 10 years as a longer tenure means larger amounts will be paid to the lender as interest which may sometimes exceed the principle sum borrowed.
3. Many mortgages require a down payment of say 20% of the sum borrowed.
4. Most lenders of mortgage loans require that the loan is covered by a private mortgage insurance, government insurance, or guarantee.
5. Interest rates on mortgages vary and 15 year loans have lower interest rates than 30 year loans. Interest rates can be fixed or floating and depend on the kind of loan chosen.
There are many kinds of mortgage loans:
Conventional mortgages are not insured by the government. Loans with a down payment of less than 20% will require insurance to protect the lender. In depth information on conventional mortgage loans is at Fannie Mae and Freddie Mac websites.
FHA-Insured mortgage loans are integral to the US Department of Housing and Urban Development initiatives. This gives low downpayment loans to those who cannot afford downpayments. The downpayment is usually just 3% of the loan amount. But here the mortgages are for low cost housing. Information on such programs is at the HUD website.
VA-Guaranteed Loans are for those in military service and requires no downpayment. More information on this is at http://www.homeloans.va.gov/ .
Rural Housing Service Loans are for those who need homes in rural areas. There are special schemes for low-income people too. Generally these mortgages are at lower interest rates.
State Housing Finance Loans are for first time home owners and are at lower interest rates than that prevalent in the market.
ARM or Adjustable Rate Mortgages are mortgage loans where the interest rates changes according to financial market movements such as Treasury bill rates. These loans are offered by banks and other lenders.
When you are thinking of buying a house or a commercial real estate property you need to first learn what mortgages are and find out what will suit you best. Study mortgages, your personal finances, future plans, and your housing needs before setting out to buy a property. Think of long-term and not immediate needs
Barry Allen is a freelance writer for http://www.1888mortgages.com , the premier website to find best mortgage rates, home equity, investments, auto, Credit Cards, cash out refinancing, home loans, home equity loans and many more. His article profile can be found at the premier Home Loans site http://www.1844homeloans.com
