Mortgage Information

A mortgage is a loan that is taken out in order to buy a home. A mortgage is normally the largest investment in a person's life and should be treated that way. You should take your time to educate yourself a little bit before jumping into trying to buy a home or even refinancing your home. Learning a little bit about the mortgage process can save you from making typical mortgage mistakes and can save you a lot of money by helping you to get a better deal. Consult your mortgage loan officer to learn more about the mortgage process.

Mortgages are available for a variety of terms. Commonly, the available terms, or lengths, of the loans are 10 years, 15 years, 20 years, 30 years, 40 years and even 50 years.
Balloon loans are amortized for a longer term, such as 30 years, but must be paid off or refinanced after a shorter term, such as 10 years. So, there is a large payment or "balloon" payment at the end of the term.

Mortgages may also be offered as a fixed rate loan or an adjustable rate loan. The fixed rate mortgage has the advantage of having a fixed interest rate and fixed monthly payments over the life of the loan. However, the fixed rate mortgage tends to have a higher interest rate than the adjustable rate mortgage.

An adjustable rate mortgage (ARM) has an interest rate that varies according to pre-determined rules. There is usually an introductory period associated with an adjustable rate mortgage during which the interest rate may be fixed or may be offered at a below-market rate. The interest rates on adjustable rate mortgages are usually lower than rates on a comparable fixed rate mortgage, and therefore the monthly payments will usually be lower. For this reason, adjustable rate mortgages are attractive to first-time homebuyers and individuals seeking the lowest possible payment.

By law, banks and mortgage brokers are required to provide potential loan applicants certain disclosures, the Truth In Lending disclosure and the Good Faith Estimates. These federal disclosures aim to inform loan applicants of their rights and to help them make educated decisions regarding their mortgage loans. Besides federal regulations, there may be other state specific disclosures. As proof that you have been notified of your rights, your mortgage professional needs your signature on the various disclosure forms.

Another thing to consider when deciding between a fixed rate mortgage and an adjustable rate mortgage or ARM is how long you plan on owning the house you are buying or refinancing. Currently the average house is refinanced once every four years and sold once every seven years. If you see yourself "trading up" some day to a larger home then an longer term ARM such as a 5 or 7 year ARM might make sense. Your mortgage professional can help determine which loan program will best fit your long term goals and plans.

Your credit score is perhaps the most important factor in determining the interest rate that you qualify for when buying or refinancing a home. Making payments on time, having stable balances on accounts, having accounts open for a sufficient length of time, and the total number of open credit accounts are all factors that help determine what your credit score is.

Special mortgages for self-employed borrowers include Stated Income, No Ratio, and No Doc programs which require little or no income documentation.

On a higher level of finance, one can use a mortgage as a highly developed financial instrument. What better way to increase your net worth and increase your financial security than to use your most valuable asset, your home, as a means to an end. To tap the equity in your home you can obtain a mortgage from a knowledgable debt consultant (mortgage broker).

» DISCLAIMER: The information contained in this article on 'Mortgage Information' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.