A mortgage is simply a loan that uses the home you
purchase as collateral. Most are designed to be paid off in 15 to 30
years. Most borrowers will pay one-twelfth of their annual mortgage
payment to property taxes and homeowner's insurance. This is usually
set aside in an escrow account, with a portion of your monthly
mortgage payment going into it each month. The lender then pays the
taxes and insurance premiums to ensure that they are made in a
timely fashion.
There are four, and sometimes five, parts to a
mortgage payment. The first four are called PITI, which stands for
principal, interest, taxes and insurance. Some borrowers will be
required to pay private mortgage insurance premiums in addition to
the PITI.
Fixed-rate mortgages and adjustable-rate mortgages are
the two basic types of mortgages. A fixed-rate mortgage has a set
interest rate and monthly payment amount for the entire life of the
mortgage. An adjustable-rate mortgage, also called an ARM, has a
rate that adjusts according to market interest rates. It can go up
and down. Some loans are a combination of fixed and adjustable
rates, called hybrids.
You should weigh the pros and cons of each type of
mortgage before you decide which is best for you. The initial
interest rates on ARMs are typically lower than fixed-rate mortgage
rates, but you have the risk of the rates rising over time. You
should consider how long you want to live in the house, how often
the ARM adjusts, how high the payment could go and whether rates are
going up or going down.
People with poor credit are able to secure a mortgage,
but they will pay higher interest rates and face stricter terms.
These subprime mortgages are designed to help consumers purchase a
home. Most subprime mortgage companies are ethical and legitimate,
but there are predatory lenders out there that target the subprime
borrower.
There are many different types of lenders to choose
from. The decision can be a hard one to make. Mortgage lenders,
mortgage brokers and banks, thrifts and credit unions make up the
majority of mortgage lenders.
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