Most of us who want to buy a home will need to take out a mortgage.
A mortgage is offered by lending institutions as a customized loan product for home purchasing.
These loans are normally over a 30 year period but you will also find them being offered over 15, 20, 25 and sometimes 40 year periods.
Taking out a mortgage is a big commitment, you will need to understand some of the basic parts of a mortgage.
A mortgage is always made up of 3 basic parts, the size of the loan, the term of the loan and the interest rate you pay on the loan.
The size is what you are borrowing from the lender.
This is the core of the loan that influences every other aspect of your commitment.
If you have a principal and interest rate loan your principal is size of the loan.
If you have a interest only loan, the size of the loan is what you have to pay to the lender when you conclude the loan.
The term of your commitment is how long the loan will be active for.
The term is always expressed in years and the most common term is 30 years.
Longer terms enable the monthly repayment to be lower than shorter term loans, but these loans of 25, 30, 40 years cost more over their life as you pay more interest.
The interest rate is the profit that the lender makes by giving you a mortgage.
In budgeting always add 3% to the current interest rate as rates will rise over the course of the term (unless you have a fixed rate).
The lender will also provide you with the effective interest rate over the life of the term of the loan, this will nearly always be higher than what you interest rate is today as it includes fees, charges and estimated interest rate rises over the term of the loan.
A mortgage is offered by lending institutions as a customized loan product for home purchasing.
These loans are normally over a 30 year period but you will also find them being offered over 15, 20, 25 and sometimes 40 year periods.
Taking out a mortgage is a big commitment, you will need to understand some of the basic parts of a mortgage.
A mortgage is always made up of 3 basic parts, the size of the loan, the term of the loan and the interest rate you pay on the loan.
The size is what you are borrowing from the lender.
This is the core of the loan that influences every other aspect of your commitment.
If you have a principal and interest rate loan your principal is size of the loan.
If you have a interest only loan, the size of the loan is what you have to pay to the lender when you conclude the loan.
The term of your commitment is how long the loan will be active for.
The term is always expressed in years and the most common term is 30 years.
Longer terms enable the monthly repayment to be lower than shorter term loans, but these loans of 25, 30, 40 years cost more over their life as you pay more interest.
The interest rate is the profit that the lender makes by giving you a mortgage.
In budgeting always add 3% to the current interest rate as rates will rise over the course of the term (unless you have a fixed rate).
The lender will also provide you with the effective interest rate over the life of the term of the loan, this will nearly always be higher than what you interest rate is today as it includes fees, charges and estimated interest rate rises over the term of the loan.
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