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You’re considering taking out a home mortgage and want to learn more about it.
A home mortgage is a loan that a mortgage lender or a bank gives you to help you buy a house. In return, you agree to make monthly payments over a pre-decided period of time in order to pay back the loan. You can also go with mortgage loan originators.
While it is the most common way to finance a home, it is a big commitment and shouldn’t be taken lightly.
This article will give you 3 key facts about a home mortgage to help you understand what goes into it. Read on!
1. How a Home Mortgage Works
Your monthly payment will be set by taking the amount you’ve borrowed, or principal, adding to it the interest rate of your loan and spreading out the resulting sum evenly over the course of the repayment period.
Usually, this repayment period is either 15 or 30 years. With the shorter option, you’ll pay more each month but pay less interest overall. The longer option means that you’ll pay less each month but will end up paying more interest in the end.
Sometimes the mortgage lender, such as Loanpal, will also pay your quarterly property taxes and annual homeowners insurance premiums for you as well. In that case, your monthly payment will be a bit higher.
2. What’s a Second Mortgage?
A first mortgage is a loan with the aim of buying a home. Additionally, there is something called a second mortgage that allows you to borrow against the value of your house.
Second mortgages are also referred to as home equity loans. The equity in question is the percentage of your house that you own outright. To calculate it, you subtract your outstanding mortgage balance to your house’s market value.
There are two types of second mortgages.
Home Equity Loan
In this case, you borrow a lump sum of money. You then pay it back over time at a preset interest rate.
Home Equity Line of Credit
A specific sum is made available for you to borrow from over the course of a certain period of time. You can borrow from it as the need arises.
3. The Difference Between a Loan and a Mortgage
While mortgages and loans are similar, there is a key difference. With a standard loan, you borrow money either based on your credit score or financial need for federal student loans.
On the other hand, mortgages are specifically designed for the purpose of buying a house. While the bank will still check your credit to help you qualify, the difference with a regular loan is that your house is used as collateral.
Key Facts About a Home Mortgage
A home mortgage is a loan that you get from a money lender or a bank in order to buy a house. You agree with the lender on a period of time to pay it back, either 15 or 30 years.
Each month, you pay back part of the principal with interest. If you stop paying your mortgage, the lender can sell your house to recoup their money.
A second mortgage is another type of loan that lets you borrow against the value of your home.
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