Shopping For a Home Loan

A home mortgage will probably be the largest financial commitment you will ever make. There are four main elements of your mortgage: loan, principle, interest, taxes, and insurance.

• The principle is the capital amount you are borrowing. This is the purchase price less your down payment.
• The interest is the fee that the lender charges the borrower for using his money. The rate can be fixed or variable during the life of the loan.
• An escrow account may be used to keep your property taxes safe until it is time for payment.
• There are two types of insurance. Homeowners insurance in case the property is damaged accidentally, and private mortgage insurance, which may be required by some lenders if you have less than twenty percent down payment.

Loan Types and Choosing a Loan

As mentioned above there are two major types of home mortgages, fixed and variable, but there are many diverse home mortgage choices, depending on the length of time you plan to live in your home.

If you are planning to live in your home for more than five years and want your payments that stay the same, a fixed rate mortgage may be a good choice.

If you plan on staying in your home for a shorter period of time, you may want to consider an adjustable rate mortgage. Sometimes the interest rate on an adjustable rate mortgage is lower than a fixed rate resulting in lower payments. It is not uncommon for the rate to stay the same for a period of time before it “adjusts” to reflect current interest rate conditions. At this time your payment could go up. There are many different types of adjustable rate loans. The biggest difference between a fixed rate and adjustable rate is the certainty you get with a fixed rate.

Consider your options carefully before choosing a home loan. Your lender can work with you to help determine which loan is best for you.