Mortgage Types Explained
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For many Americans, part of the American dream is owning
their own home. But for the majority of people not named
"Gates," purchasing a home outright with cash is well beyond
their financial scope. So, they need to get a mortgage to
purchase their home. But getting a mortgage can be a
complex process, especially for first-time home buyers.
So what is a mortgage? Basically, it is an agreement
between you and a lending institution that says you will
repay your loan at a certain interest rate over a certain
number of years. The mortgage will be secured against loss
with your new home, so if you default, the lending
institution will take ownderhip of the home.
You may be familiar with personal loans or the interest
charged on your credit cards. The good news is that home
mortgages generally offer a lower interest rate than credit
cards or personal loans because of the longer period of time
over which you will pay the off the loan and the interest.
Your loan payments will usually be monthly, and the
repayment terms could be anywhere from 10 to 30 years.
There are two major types of home loans in America now, with
a third type becoming more popular in recent years. The
first type of loan is the fixed home loan which allows you
to borrow the money at a specified or fixed rate of interest
for a specific numbers of years. Many borrowers sign up for
this loan because in doing so they avoid the risk of having
to incur extra expenses if home loan interest rates should
fluctuate.
The second type of loan is the variable home loan which has
a variable or changing rate of interest. Should the Reserve
Bank determine that interest rates will move up or down in
a particular quarter, then your lender has the freedom to
also do so accordingly. If the rates are heading downwards
it is ideal for borrowers. But should they begin to trend
upwards this can spell danger for many people who live on a
tight budget and already struggle to make their monthly
repayments.
Lately, there has been a new type of mortgage that has been
gaining popularity. Called a "low doc" or bad credit loan,
these types of mortgages usually come with higher fees and
higher interest rates to offset the additional risk to the
lender who is working with those with bad credit. But for
many, these low doc mortgages are the only way people with
poor credit or low incomes can get into the home of their
dreams.
But, no matter what your credit history, there is a home
mortgage out there that will fit your needs. You just need
to do your research, practice a little patience, and you
will soon be pulling the "For Sale" sign out of the lawn
of your new home!
Apu Hypallathek is the owner and operator of
http://usemortgage.com
Use Mortgage, Inc., a
leading Internet directory for mortgage information. For more
mortgage information and resources, please stop by:
http://www.usemortgage.com
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