When it’s your first time to purchase a home and apply for mortgage, there are a lot of things that you need to know and understand. There is a need for you to know how mortgage works and the terms that are often used in this type of transaction. If you find it important to get as many information as you can about different buying strategies, you might as well try to obtain as many info as you can about mortgage.
A mortgage is the pledge that banks or mortgage providers hold against its borrowers in the event that they fail to pay the loan that they have obtained from them. Mortgage in this sense refers to a valuable property and, at the same time, a guarantee that a borrower will settle his or her obligation to the mortgage provider or mortgagee. Failure to pay means the mortgagee has the right to repossess your home.
In a mortgage, you will usually choose from the two main types of mortgage, which are the fixed rate mortgage and the adjustable rate mortgage. In a fixed rate mortgage, the rate of interest remains the same for the entire repayment period. It doesn’t matter if you are going to pay your mortgage within 10 years or within 30 long years.
The main advantage of the fixed rate mortgage is that borrowers already know their obligation to their mortgagee. They do not have to guess anymore how much they will have to pay this month or in the coming months. Even if the current market interest rates will rise in the future, this will not affect the amount of the monthly mortgage repayments. This type of mortgage is highly recommended to people that are planning to purchase a home for the first time.
As for the adjustable rate mortgage, of course, this is the opposite of the fixed rate mortgage wherein the interest rate vary based on the interest rates dictated by the Federal Bank and by the mortgage provider. This may mean that your monthly mortgage repayments on the succeeding months will not be similar to the previous months. This type of mortgage is quite difficult to handle if you are not knowledgeable of the market economy. However, you will get to save money if the interest rates are low as you’ll be paying smaller amounts than what you’re normally paying. While the fixed rate mortgage is ideal for first time home buyers, this adjustable rate mortgage is perfect for the experienced home buyer.