Mortgage Talk
A Home Buying Article Contributed by Cindy Mcnatt
What is a Mortgage?
A mortgage is legal a document that pledges security by the home buyer as collateral for a loan.
There are many types of mortgage loans available including fixed rate, adjustable (ARM), bi-weekly, and interest only plans. What home buyers should know in advance is how much house they can afford, what their credit score or FICO score is, and how to qualify for the mortgage they are seeking.
Mortgage Types
The type of mortgage you choose will be based in part on your plans for the future, your present income, and your credit score. Here is a partial list of mortgage types with brief explanations of each:
Fixed Rate Mortgage - a loan which specifies the monthly payment for the life of the loan. Usually 15, 20, and 30 year time periods at a fixed rate of interest. Good for people who want payments fixed over the life of the loan.
Adjustable Rate Mortgage - a loan that has an interest rate which will fluctuate over time depending upon the prime rate rising or falling. Good for people who want a low monthly payment in the beginning of the loan, but expect their income to rise or may plan to sell within a certain amount of time.
Interest Only Mortgage - a loan that requires payment of interest only for a period of time, then at the end of the period, requires full payment of amount borrowed. This type of loan may be appropriate for people who know they will move soon and sell the house. Equity is not built up in the home as interest only is paid.
Bi-weekly Mortgage - a loan that allows borrower to make extra payments to shorten the life of the mortgage. Borrower makes a total of 26 payments (monthly payment divided by two) which results 13 payments over the course of a year. The 13th payment applies to the principal only which reduces the amount of interest over the life of the loan as well as shortening the loan period.
Shopping for a Mortgage
Compare mortgage rates on the internet between lenders. Be sure to compare apples with apples though. Compare the same types of loans, then see if you benefit by shortening the time period. When you have found the type of loan at a rate which is favorable, it is time to check your credit report.
Credit Reports Affect Mortgage Rates
Find out in advance what the three main credit reporting agencies have to say about your credit. request your credit report and score from each agency for errors or omissions which may affect your score. You must notify each agency of any corrections that need to be made. After you have done this task, determine if you need to bring up your credit score. FICO scores are used to determine credit worthiness which will affect your mortgage application. The higher the score the cheaper the interest rate will be is normally the case.
Armed with this information and knowledge of the interest rates, you are now ready to make an application to the lender of your choice.
