Mortgage Basics for First Time Home Buyers

Mortgage Basics for First Time Home Buyers
Financial terminology sometimes can be rather confusing, especially if you are planning to take mortgage for the first time. At the same time it is extremely important to understand the process completely and in details to make a right decision. Remember, it will significantly influence your future life. Another essential thing to do is to make all the required calculations on your mortgage plan before making a final decision. You should calculate and compare monthly payments and overall sum for every type of mortgage. This is needed to understand how much home you can comfortably afford without having any payment difficulties in future.

One of the major decisions is the one on the term of the loan. Most fixed term mortgages offer either a 15 year period or a 30 year period mortgages. The basic difference is that for a 15 year plan monthly payments are going to be a bit higher, but in the long run you pay less interest, so the mortgage works out cheaper over the life of the loan; for a 30 year plan you pay more over the whole term but monthly payments are lower, so you can possibly afford a more expensive home.

Another choice to be made is on the type of mortgage. Two basic choices are a fixed or an adjustable rate mortgage. Although the names pretty much explain the difference, making a decision can be rather confusing. It all depends on your situation. With a fixed rate mortgage the interest rate is set when the loan is made; it remains the same throughout the life of the loan. With adjustable rate mortgage plan the interest rate may change after a certain fixed period depending on many financial factors that are not controlled either by the lender or the borrower. Usually there is a cap to protect the borrower from instant interest rate rises. A fixed rate mortgage plan is less risky, but with an adjustable rate one you can benefit from low initial rates and from rates decrease in future without refinancing.

Anyhow, all the decisions are up to you so take your time to learn as much as you can about mortgage types and plans. Even a small detail can considerably influence your decision if you are familiar with it, so don’t haste and obtain all the information you can. And if you do, every minute spent on this will return as hundreds of dollars in the long run.

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