A mortgage is an agreement that you make with a lender to get a home loan by using your property as collateral. If you default on your loan repayments, the mortgage agreement allows the lender to take action. Repeatedly missing mortgage payments could result in foreclosure. Here are a few more things you need to know about mortgages.
Why Take a Mortgage?
Most people do not have enough money to buy a home outright, so they put down a down payment and get a loan to cover the remainder of the purchase price. Given that the loan is for a substantial sum of money, lenders require borrowers to mortgage their home for security.
Types of Mortgages
There are several types of mortgage loans. Fixed-rate mortgages and adjustable-rate mortgages are the most common types. Fixed-rate mortgages refer to loans for which the interest rate is fixed for the duration of the loan term. Adjustable-rate mortgages work like traditional loans, but the interest rate can fluctuate during the loan term. Other types of mortgage loans include reverse mortgages, balloon loans, interest-only loans, and refinance loans. There are also several government-backed loan programs that make homeownership more accessible.
How to Get a Mortgage Loan
To get a home loan, you’ll need to make an application to a mortgage lender. Since mortgage loans typically require more documentation, the application process is longer than other types of loans. Before you apply to a particular lender, check your credit score and get your documents in order. You should also consider applying for pre-approval for a few different loans so you can compare the loan offers. Keep in mind that the loan amount you borrow will impact your monthly payment. So, check how much you can comfortably pay on a monthly basis before taking the loan.
Where to Apply for a Home Loan
You can approach commercial banks, Savings and Loan associations, credit unions, and online lenders to get a mortgage loan. You can also apply through a mortgage broker who works with different lenders.
The best way to get a good deal on a home loan is by shopping around. Make sure to especially watch out for the interest rate and closing costs when comparing loans.