Business stuff
can be downright confusing especially
when confronted with rates, numbers
and the banking jargon that seem alien
language to you. Still, you do not really
have much choice as loans, interest
rates and mortgages are words that you
can either understand and study or risk
losing the roof over your head.
What is a mortgage?
Mortgages is a legal and binding
contract that indicates that you have
agreed to use your house as security
for a loan made. Upon signature, the
lender will hold the title deed of
the property until after you pay all
the money that you owed plus interest.
If in case, you are not able to make
mortgage payments, the lender has
the right to sell the property.
What are mortgage payments
To make it easier for you, the lender
will give you opportunities to pay
your loan in installment. Some will
ask for a down payment, which is a
lump sum that you have to pay in order
to reduce the amount of money that
you have to pay in a certain period
of time. The balance of the loan will
be divided according to the payment
period stipulated in the legal contract.
Often, people choose monthly payments
as these are easier to the pockets.
Others opt for annual payments.
What makes up the mortgage payment?
If you think that you only have to
pay the amount that you loaned and
nothing else, think again. There are
a lot of additional costs in getting
a mortgage. In addition to what you
originally owed, which in banking
terms, is called the principal, you
also have to pay for the interest,
the property tax held in an escrow
account and hazard insurance to protect
you from fire, storms, theft and even
flood. And unless you have at least
20 percent of your home's value paid
for, you still have to get a private
mortgage insurance, which can be really
expensive. Some people avoid this
by opting to pay for more than 20
percent in their initial down payment.
What are the types of mortgages?
As the name suggests, fixed-rate
mortgages offers interest rates that
will remain as it is over the entire
life of the loan. The 30-year-fixed
rate may be a good option for people
who will be staying at their home
for many years as the payments will
relatively be the same. The downside,
however, is that interest rates are
at their highest level in this kind
of scheme as compared to shorter payment
scheme pf 20-year and 10-year-fixed-rate.
Another type of mortgages is the
adjustable-rate. Unlike the fixed-rate
that basically maintains the interest
rate, the interest rate of this type
is dependent on the market rates and
economic trends. Often, the starting
interest rate for this is a couple
of percentages lower than the interest
offered in fixed-rate but because
of market dynamics, it can go several
points higher in a course of a few
years.
To protect you from skyrocketing
interest rates, the terms of the mortgage
contain a clause that limits the increase
of interest rates to a certain level.
This is called the caps. Often, the
limit is set at a certain rise in
interest per year.
The balloon mortgages is a variation
of the fixed-rate mortgage except
that at the end of a certain payment
period, you are required to pay for
the remaining balance of the loan,
which is often called the balloon
payment. This is a good deal especially
for people who plan on selling the
property and refinancing it again.
What other options are there for
home-owners?
The government and the business sector
offers a variety of loans that people
can avail of to help them. Government
loans, for instance, help lower the
costs of mortgages.
One of the agencies that offer such
is the Federal Housing Administration,
which is part of the Department of
Housing and Urban Development. The
FHA offers a financing program for
mortgages that has significantly lower
interest rates. While the FHA will
not in essence be paying for the loan,
it will nevertheless serve as your
guarantor. This makes people who do
not really fit the traditional bill
and requirements able to get a loan.
Other agencies like the Veterans Administration
and the Rural Housing Service, offers
help to niche markets.
