What You Need To Know About Home Mortgages

One of the biggest investments one can ever make in ones lifetime is buying a home. While some have the means to purchase their dream homes outright, many have to realize their dreams using available home mortgages. Exploring the multitude of mortgage options can give you a headache. Heres what first-time home buyers have to know about mortgages.

Defining Mortgage
Simply put, a mortgage is a loan that you take out so that you can purchase the property that you have in mind. Most home loans or mortgages run for about 25 years, although this can be either shorter or longer, depending on a number of factors. The mortgage is secured against the propertys value until the said property is fully paid. If you fail to keep up with your mortgage payments, the lending institution can take back your property and sell it to other potential buyers.

The LTV
Since the mortgage is secured against the current value of the home you wish to purchase, you may see this reflected in one of your application documents. If you have a loan-to-value (LTV) of 80%, this means that you can only borrow a maximum of 80% of the value of the property. The remaining 20% is what you will be putting out as down payment. For instance, if a property is valued at $200,000, then you are expected to pay $40,000 as down. The remaining $160,000 is the value that you can borrow from a lender.

Mortgage Rates
In our example above, the $160,000 is the amount that you can borrow to purchase your dream home. The lender will pay this amount to the seller and you are expected to pay the amount plus interest to the lender. There are two types of interest rates: fixed and variable. As the term implies, a fixed interest rate means you are guaranteed to pay the same amount for the duration of the loan or depending on the time period that you have agreed with the lender. This can be fixed at 2, 3, 5, or even 10 years.

A variable rate, on the other hand, fluctuates depending on prevailing mortgage interest rates. It can be a tracker mortgage where your mortgage rate is dependent on a base rate of a specific financial institution, usually the Bank of England. There are also discounted mortgages which can slash off a certain percentage off the existing mortgage rate but only for a period of time.

Home mortgages help you obtain your dream home. In simple words, you are borrowing from someone to help you in this dream.

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