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The decision
to buy a home can be one of the most valuable and important investments
one can make. Therefore it is important that you are familiar with
the mortgage process so that you can wisely finance your home.
Essentially, a mortgage is just a loan that is used to finance the
purchase of property. The property itself is used as security to
ensure repayment until you have repaid the entire amount plus interest.
There are many types of mortgages on the market and finding the
right one can be an overwhelming project. The best approach is to
divide the process into manageable tasks. Sit down with a mortgage
professional and examine the advantages and disadvantages of all
available options to determine which product is best suited to your
current situation and future plans.
How to Find the Right Mortgage
- Estimate
how long you expect to live in the house. If the answer is less
than three to five years, consider an Adjustable Rate Mortgage
(ARM), which typically starts out with a lower rate. If you plan
to live in your new home longer than five years, a fixed-rate
mortgage offers protection against rising interest rates.
- Shop around
for mortgage rates. Banks, credit unions, and mortgage companies
all offer mortgages. Compare at least six lenders in your area.
- Add up all
the costs for each lender. Include fees, points, closing costs,
etc., to arrive at the total mortgage cost for each lender.
Mortgage
Terms
- Amortization
Period:
The period of time after which, if all monthly payments are made
on time and in full, the loan will be paid out.
- Down Payment:
The amount of money provided by you, the purchaser toward the
price of the property (not including legal fees or other acquisition
costs).
- Interest
Rate:
The actual cost of borrowing money, charged as a percentage of
the outstanding amount owed. Usually compounded on a monthly basis.
- Mortgage
Amount:
The total amount of money to be borrowed by you, the purchaser,
and applied toward the price of the property.
- Prepayment
Privileges:
The right of the borrower to pay out all or part of the outstanding
principal before it comes due.
- Term of
the Mortgage:
The period of time during which the loan contract is active. During
this period, you the Borrower makes periodic payments (usually
monthly) to the lender and at the end of the term the balance
of the loan becomes due and payable
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