Understand All About Home Mortgage Before Applying For One

Mortgages are commonly obtained by people for various purposes – to buy a new home, pay off existing debts to help ease financial burden etc. Many banks and financial institutions – both private and government sponsored – offer home mortgage loans that people can avail to buy a new home. Before applying for a home mortgage, one must be clear how it works, what the costs are, how much you are eligible to borrow and what will be your monthly payments.

A mortgage calculator helps an individual calculate all the above amounts. For example, after giving the necessary inputs, if your monthly home mortgage payments come to around $3500, you must calculate if your monthly income will allow you to pay this amount and yet live comfortably while taking care of other expenses. There are different unforeseen circumstances that you will need to factor in too. What if you become ill and lose your job – will you have enough savings or insurance money to cover your mortgage payments?

A mortgage calculator is usually included in the website of home loan institutions. You will be asked for information like cost of the home you wish to purchase, period of the mortgage, interest rate, salary etc. Once you input these details, the calculator will give you an estimate as to how much you will need to pay each month. You will also be offered a detailed explanation as to how the figure was arrived at. If you require any further explanation, there will be willing agents of the company who will explain all details to you.

Home mortgage rates could vary from state to state and while it is quite easy to obtain a loan, it will be more difficult to maintain the payments regularly. This is why there are so many foreclosures and abandoned houses sitting all across the country because the owners could not afford the mortgage payments and had to lose the house. Hence, lenders have become more wary and are only prepared to give mortgage loans to those with a good credit history. This is why those with bad credit will find it almost impossible to obtain a home loan.

In order to buy your dream home and yet be able to pay your home mortgage on time, you must first understand the different types of home mortgage loans on offer.

• Fixed Rate Mortgage
• Adjustable Rate Mortgage
• Interest Only Mortgages
• Balloon Mortgages
• Reverse Mortgages

Fixed Rate Mortgage means that the interest rates will remain the same for the period of the loan and you will be liable to pay a certain amount as fixed monthly payments and there won’t be any rate fluctuations.

Adjustable rate mortgage as the name suggests means the interest rates will change depending on the market. If it dips then your rates will also be low. However if it increases then your rates can also increase. So, if you are prepared to take the risk, then you can go in for this type of mortgage. The other types are lesser known mortgages. Interest only mortgage rates will be low initially and increase after the ‘Interest only’ period ends.

Balloon mortgages have low interests for a period of 5-10 years. It is easy to qualify for this and during this duration, you can pay small token amounts towards your loan. Once the protection period is over, you have to pay up the balance amount in total and how you do so is your problem. You can sell the house or refinance it or use your insurance amount to pay up the balance. Reverse mortgages are meant for senior citizens who can get a regular monthly payment based on house value, age and such. The homeowner need not make any mortgage payments while they live in the house. The outstanding balance will remain with interest being added to it. If either husband or wife die or sell the house and move out, the remaining amount must be paid up in full.

If a borrower finds that he is does not have the money to make the initial mortgage down payment, he can apply and get a private mortgage insurance. The amount is around 25% of the cost of the house and he will have to pay a premium for this money. Private mortgage insurance protects the lender from a borrower who defaults on payments. Use a mortgage calculator to get your figures right, take time to shop around and understand about the different types of mortgages and what will suit you the best before applying for one.