If you plan to buy a home in your lifetime and don’t have a large trust fund or lottery winnings, one of your first stops in a home search will be a bank or lending company. A mortgage is a loan that you receive from a financial representative that is placed against the value of your home and promises the bank that you will pay for your new home over a period of time, which can vary from fifteen to thirty years.
There are two general types of mortgages: variable interest rate mortgages and fixed rate mortgages. The interest rate is what you will pay on top of the amount you borrow as a “privilege” for borrowing the bank’s money. With a fixed mortgage you will pay the same amount every month. A variable rate mortgage often seems more appealing to new home owners because you pay a lower interest rate at the beginning of your payment schedule. However, variable interest rate mortgages are susceptible to market changes, often increasing as time goes on.
A mortgage loan is essentially a loan against your new home, so if you fail to repay it you can lose not only a positive credit reputation but your new home as well. This is why a mortgage is also known as a “lien” or a “claim” on your property. Because of the risk of losing your home, you should be careful not to over-extend yourself when applying for a mortgage loan. Choose a house that is within your current budget and doesn’t require a lot of updating.
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