Mortgage Owners

Understanding Mortgages: A Beginner’s Guide to the Ins and Outs of Mortgages

A big part of the American Dream is becoming a proud owner of a home. And chances are, unless one has the cash available to purchase a home outright, obtaining a mortgage will be a necessary part of the home buying process. For those who are new to the housing market or are curious as to what a mortgage is and entails, here is a helpful starting point.

What is a Mortgage?

Though the actual term mortgage has a long history which includes a few variances in its meaning, today a mortgage is quite simply the loan one is granted, and expected to repay, in order to purchase a home. The home loan can be broken down into two simple parts at first:

• life
• term

The life of a mortgage refers to the period of time the mortgage owners will repay the home loan, if all payments are made according to schedule. The most common mortgage life is somewhere between 20-30 years.

The term of a home loan is where a mortgage can get a little more complicated for mortgage owners. The term refers to the time period in which the homeowner has agreed to make payments according to a certain schedule, as well as certain stipulations and conditions. Such conditions that are normally associated with the term of a mortgage are:

• the interest rate at which the loan is to be repaid at, which can either be a fixed or adjustable rate. A fixed rate is a rate that is locked in at the time the mortgage is granted, and will not change over the years, while an adjustable rate mortgage, or ARM, is one which the interest rate can fluctuate either up or down, depending on the market and external variables.
• the amount of money mortgage owners are allowed to pay in addition to the predetermined payments, which will count towards the actual loan, and not the interest.
• restrictions on the amount of money above the scheduled payment that can be made each month, which is usually a percentage of the original payment amount.
• ability to renegotiate the rates of a mortgage, as well as any applicable penalties for the renegotiation of the terms of a mortgage.

Changing such terms of a home loan can sometimes be an involving process, which can also play host to another set of stipulations and conditions, such as the period of time such negotiations are valid for (usually five years at most).