A mortgage is likely to be one of the most if not the single-most significant loan you will ever have. Understanding your mortgage is key to making sure you are making the best possible financial decisions about your home loan. Here are some of the basic facts about mortgages including mortgage types. This information may come in handy when buying your home or considering options for your mortgage.
#1. What Is A Fixed Rate Mortgage?
Making up over 75% of all home loans, fixed rate mortgages are the most popular mortgage loan type. Having a fixed rate mortgage means that you know your interest rate when you take out the loan, and this interest rate will remain the same for the duration of the mortgage payments. The term is the length of time over which the loan is repaid, plus interest. Borrowers typically have the options of choosing the length of their term from between 30 years, 15 years or 10 years. The most popular term for fixed rate mortgages is 30 years.
#2. What Is A Reverse Mortgage?
The option for reverse mortgages is only open to homeowners 62 years of age or older. In a reverse mortgage, instead of making a monthly payment on a mortgage and increasing the equity or ownership of the house incrementally, the bank pays a cash payment to the homeowner while the homeowner’s equity decreases incrementally. Often, the repayment of the loan is deferred until the homeowner dies or if they sell their home. If the homeowner dies, the heirs no longer hold the home as an asset and it belongs to the bank.
#3. What Does Refinancing Your Home Loan Mean?
Refinancing your home loan refers to when the terms and conditions of your mortgage obligation are reevaluated and replaced by new terms. Often this can result in better interest rates for borrowers. It is possible to refinance between 90% and 95% of a home’s value on a conventional mortgage.
Understanding the terms of your mortgage and the options you have as a homeowner is important to your financial stability. If you have questions or comments regarding the information provided here, be sure to leave a comment.