Getting a mortgage and purchasing a home plays an important role in an Americans life these days. Generally people cannot afford to purchase a home outright with cash reserves, so they opt instead to begin looking at getting a mortgage and purchase a home. Getting a mortgage is a complex process but is tempered by an exciting outcome.
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 ownership of the home.
Home loans in America attract different interest rates according to the institution you lend from, but you will find that they are generally lower than a standard personal loan or credit card offered by the same institution. The bank or lender can usually afford to offer an amount of interest lower on home loans because of the extended period of years in which you will be paying interest, as opposed to a personal loan or credit card which is usually paid off in a shorter amount of time. Loan repayments on mortgages are usually paid fortnightly or monthly and have a term of around 25-30 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.
A variable-rate mortgage is where the interest rate of the loan changes over the course of the mortgage term. The variable rate mortgage is usually tied to the prime rate of lending available to banks and set by the Federal Reserve Bank in Washington, D.C. When the prime rate is lowered, there is a good chance you will save money with a variable interest rate loan. But, when the rates go up, the cost of a variable rate mortgage goes up, and this can be a very trying event for those who are on a tight budget as they try to pay their monthly mortgage.
The third loan, which is becoming more popular in America is the bad credit type loan otherwise known as the low doc loan. Bad credit or low doc home loans may sometimes be slightly more expensive in terms of setup or maintenance fee and usually attract a high rate of interest over the course of the loan. This offsets the lenders increased risk at the borrower having a poor or indeed no credit history and possibly defaulting on the payments after getting the mortgage. These loans are particularly popular with people who have a bad credit history, people who have low incomes including those who receive social welfare payments and people who are self employed.
No matter what type of credit you have, there is probably a mortgage lender out there who will help you make your dream of home ownership a reality. You just need some patience and a lot of perseverance to erance to get into the home of your dreams!
Apu Hypallathek is the owner and webmaster of Use Mortgage, a leading Internet portal for mortgage information. For more mortgage information and resources, be sure to visit: http://www.usemortgage.com
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