What is a Mortgage?
A mortgage is a tool used to allow a potential home owner to purchase a home without paying the full price up front. Using the bank's money the borrower is able to purchase a home they may not have been able to afford on their own. The borrower then must pay this loan back plus interest over the course of many years (depending on the term of the mortgage). If the homeowner fails to make payments on time and defaults on the loan the lender has the ability to evict the residents and put the home in foreclosure. The bank/lender can then sell the home and use any income to settle the mortgage debt.
What is a Mortgage Term?
The mortgage term is the amount of time your mortgage agreement with the bank/lender is in effect. This period can be as long as 10 years or as short as 6 months but at the end of this time you are no longer committed to the mortgage rate, lender or original conditions agreed upon by the lender. At this time generally one must renew terms with a lender at a new mortgage rate and under new conditions, for better or worse.
Mortgage calculators are a handy tool used by both potential homeowners and lenders alike. They factor in elements like the loan principal, balance, compound interest rate, number of payments per year, total number of payments and the regular payment amount to determine the financial burden that will be put on the borrower/homeowner. In the end a good mortgage calculator can help you determine which homes you can actually afford in the long term. Luckily there are quite a few free mortgage calculators available.
Free online mortgage calculators:
What is a Mortgage Rate?
The mortgage rate is the rate of interest you are charged on the mortgage (essentially the amount of money you give the bank to pay them for their loan services). Mortgage rates are one of the single most important aspects of the mortgage industry. These along with interest rates are determined by the banks and can greatly affect the home buyer's market. Getting into the market when 'mortgage rates' and 'interest rates' are low is ideal.
What is an Adjustable Rate Mortgage?
An ARM or adjustable-rate mortgage is a type of mortgage which the borrower agrees to have monthly payments which can fluctuate as interest rates go up and down with the market. Generally lenders agree to a short initial fixed-rate so the borrower can have some initial reliability but once that period is over the payments can go up and down. Borrower's and lenders can also agree to a "rate cap" which limits the amount the rate can change in a given term (these terms can last for a year or life depending on what is agreed upon).
What is an FHA Loan?
An FHA or Federal Housing Administration loan is a type of mortgage insured by government-backed lenders and are very popular for first time home buyers.
Helpful articles on FHA Loans:
What is a Mortgage Broker?
A mortgage broker is someone who can broker (shop around for) a mortgage loan on your behalf. They have become more and more popular as they are often skilled at finding the right lender/bank for your specific needs. Most mortgage brokers are regulated by state and federal law.
What is a Second Mortgage?
A second mortgage is exactly what it sounds like... It is everything a regular mortgage is, except it is done on-top of the original mortgage. Since a second mortgage is riskier for the bank or lender to take on, borrowers tend to get strapped with a higher interest rate than that of a typical mortgage.