Mortgage generally refers to a loan that is obtained in order to purchase real estate property. Since many of us will not be able to pay cash for a home, it is important to learn the fundamentals of a mortgage. Here are the basics:
Interest Rate – Once you find a home to purchase and a mortgage lender to help finance it you should look for the lowest interest rate. The lower the interest rate, the less money you have to pay back. Interest rates will vary a great deal, but in some states, you may find rates as low as 1%.
Exit Penalties – If you have taken a mortgage it would be to repay them during a certain period of time. Therefore if you were to opt out of the deal without fulfilling the entire period the lender may charge you an exit penalty. For example, if you were to switch lenders. Therefore you should always check what the mortgage penalty is. Most often, lower the interest rate, the higher the penalty.
Mortgage Insurance – It is a good idea to take out insurance on the house in case it burns down or have issues with paying your mortgage. Therefore if you legitimately cannot afford to pay your mortgage, if you are diseased or cannot work, the insurance will pay for your home, so that your dependants and you will still have a place to live.
Your Investment – Investing in real estate means that it will appreciate over time. Therefore although you will be paying more for the property because of the interest rate, by the time you finish your payments and the property is yours, it would have appreciated to twice or three times its initial value. It is a far better investment than putting the same amount of money in the bank.