Unless you are an heir born into great wealth or you scored a huge night in Las Vegas, the odds are that you are like most people; you will need to borrow some money in order to purchase a new home. Loans for buying homes are referred to as mortgages, more specifically, mortgage loans. There are more than a few elements to the lending process that need to be considered before taking out a home loan. With this in mind, let\’s take a closer at some of the essentials.

A mortgage-based home loan is simply a loan, obtained directly from a bank or from a third party mortgage provider, which is secured by the property itself. In other words, if you fail to make payments, the lender can foreclose on your property and assume of ownership of your house. This helps explain the rationale for banks lending significant sums of money.

One of the most important parts of home financing is the loan\’s interest rate. It does not take a CPA to determine that the lower the rate the lower the payment. But sometimes a low rate is not what it seems. That is because there are essentially two types of rates, fixed and variable.

There is a major difference between fixed and variable rates. If you obtain a fixed-rate mortgage, you interest rate stays constant throughout the life of your loan. One downside to this is if the interest rate significantly drops during the life of the loan. There is an option for the homeowner should this occur. Many people refinance their mortgage to take advantage of the drop in interest.

A variable-rate loan (sometimes referred to as adjustable-rate) means just that, the mortgagee is on the hook for any changes in the credit markets. However, there is a period of time in which the rate is locked. That is to say your rate is not changing on a daily basis, but rather monthly or annually. This is not necessarily a bad thing. Your monthly payment will decrease should things work in your favor. The downside of course is increased monthly payments, and sometimes it can be significant.

Another decision you will need to make is the length of the mortgage. This is known as the term of the loan. Most mortgages are thirty years in duration. There are some that are fifteen years in length. The advantage of the longer note is lower monthly payments. 15 year notes have the advantage of having only 180 months worth of payments, rather than the traditional 360 months. Of course, tax considerations come into play. Many people write off their interest expense, and may wish to do that over a thirty year period.

Be aware that some institutions will penalize you if you pay off your loan early. It is referred to as a prepayment penalty. In fact, some paper has provisions precluding any kind of early payment. So if you come into a truckload of money, you may not be able to pay off your house.

The process of obtaining a home loan may, on the surface, some complicated if not scary. However, if you invest the time in researching the subject before hitting the marketplace, you will emerge as a more confident and informed buyer.

Author Bio: Mortgage brokers Oshawa provide friendly and comprehensive services that will help you find great mortgage rates. Come visit Mortgages Oshawa for your assessment today.

Category: Finances
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