By Lisa Smith
Let's recap what we've learned in this tutorial:
- At its most basic, a mortgage is a loan used to purchase a house.
- There are two primary types of mortgages: fixed rate and variable rate.
- A fixed-rate mortgage is a loan that charges a set rate of interest that typically does not change throughout the life of the loan.
- Fixed-rate mortgages enable buyers to spread out the cost of paying for an expensive purchase by making smaller, predictable payments over a long period of time.
- A variable-rate mortgage, also commonly referred to as an adjustable-rate mortgage or a floating-rate mortgage, is a loan where the rate of interest can change over time. When such a change occurs, the monthly payment is "adjusted" to reflect the new interest rate. Over long periods of time, interest rates generally increase. An increase in interest rates will cause the monthly payment on a variable-rate mortgage to move higher.
- Variable-rate mortgages have lower initial interest rates than fixed-rate mortgages, resulting in lower monthly mortgage payments, enabling buyers to afford more expensive homes than they would be able to purchase with a fixed-rate mortgage.
- Variable-rate mortgages are significantly more complex than their fixed-rate counterparts, and homebuyers may experience sudden and potentially significant increases in monthly mortgage payments if interest rates rise.
- A monthly mortgage payment consists of a series of underlying components that include principal, interest, taxes and insurance.
- In addition to the money required to cover the mortgage, obtaining a mortgage often requires a substantial amount of money to cover the down payment and closing costs.
- The amortization schedule is one of the most important, yet overlooked, documents involved in the mortgage process. This schedule shows the true cost of purchasing a home, including the amount of interest paid.
- Being eligible for a loan and being able to afford the property aren't necessarily the same. Regardless of the size of a loan a lender offers, don't buy more house than you can afford.
- A solid credit rating and a mortgage pre-approval will both be beneficial when you are shopping for a home. Pre-approval show buyers that you are able to make the purchase.
- There are many types of loan and many potential lenders. When shopping for a loan, take your time and search for the best deal.
Shopping for a new home is exciting. It is also a little bit complicated. There's a lot to think about and plenty of opportunities to spend more than you should. Like all major financial decisions, home shopping should not be a decision made in haste.
A careful look at your finances, a thorough review of the amount you wish to spend, and some consideration of the type of loan that you will comfortable with should all be part of your pre-planning process. With just a little bit of careful planning and some patience, your search for the home of your dreams can be a rewarding and financially responsible experience that gives you a great place to live without breaking the bank.
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