Obtaining a mortgage loan is the simplest way to finance your new home purchase. There are many new types of mortgage loans that allow individuals with little income or down payments to purchase their homes. Your mortgage is the loan you receive that is secured using your home as collateral. Mortgage interest rates are at historically low levels; this makes new home purchases and the refinancing of old loans very attractive for homeowners.
Mortgage loans come in two flavors when it comes to interest paid. Fixed rate mortgage loans come with a fixed interest rate that does not change over the life of the loan. Adjustable rate mortgage loans (ARM) have an interest rate that changes depending on economic and market conditions. These changes in your mortgage interest rate on an adjustable interest rate mortgage will cause your monthly payment to change up or down based on the corresponding changes in the interest rate.
The process of applying for a mortgage loan is not unlike applying for any other type of loan. You will be required to complete an application outlining your personal information, annual income, credit information, and the details of the home you wish to purchase. You may be required to submit documentation such as pay stubs or bank statements to verify your income.
Once you have completed your mortgage application, a loan officer will verify your information and if you meet the lender’s criteria for borrowing make you an offer for a mortgage loan. This offer will include the conditions that you will have to meet to secure the loan as well as the interest rate you will be charged. It is this interest rate along with the length (term) of the loan that set your monthly payment amount.
Keep in mind that your mortgage loan is amortized based on the term you choose. The most popular term is a 30 year loan. Mortgages with longer terms have lower payments; however, these mortgage loans also carry higher interest rates. Lower payments with higher interest rates means you will build equity in your home at a much slower rate while paying your lender much more in interest payments.
Short term mortgages with terms ranging from ten to 15 years have higher monthly payments; however, these loans come with lower interest rates. To learn more about choosing a mortgage loan or refinancing your current mortgage sign up for our free guide to mortgages and mortgage refinancing.