A complete guide to mortgage terms, rates, and phrases you may not understand.
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With no one-size-fits-all standard for personal loans, mortgage loans, or refinancing, loan amounts, duration (10-, 20- or 30-year loans), and interest rates can vary dramatically. Each type of loan carries its own particular benefits – and risks – to weigh before signing on the dotted line. We recommend gathering as much information as possible prior to making a decision. You can start with our reviews of top online lenders.
When applying for a home loan , you’ll need to show mortgage lenders that you have the means to make your monthly payments. You will be asked to provide home lenders with an overview of all your sources of income, as well as your regular bills, debts, and other outstanding loans. They will also run a credit check to gauge your risk of defaulting on the loan.
Some online lenders may have different requirements and will specify every document they need for the process. In addition, it’s wise to keep your own personal copy of every document you submit to the mortgage lender.
Before signing, make sure the lender fully explains all the terms and conditions. It’s also a good idea to check with a number of different lenders, to see who can provide you with the terms, like interest rates and duration, that best fit your income and situation.
There is a wide variety of online mortgage loans available on the market. The 2 main types are fixed loans and adjustable loans. Fixed-rate options keep the same interest rate for the entire duration of the loan, and will not fluctuate from month to month or year to year. Adjustable rate mortgages are just that – they adjust at predetermined intervals over time, but with a lower beginning interest rate than fixed loans. Fixed rate loans afford the borrower security and stability – though they will start higher than adjustable mortgages.
These tend to be the best option for first-time buyers and those planning to stay in a house for the long-term or duration of the home loan.
This option is best for buyers who plan to stay only a few years in the property, in that for the first few years the loan has a lower interest than that of fixed rate mortgages. Adjustable rate loans do carry risk though – if the value of the house plummets and your mortgage interest rates increase dramatically you may not be able to refinance or sell the home.
These have a fixed-interest rate for an initial period of time, which changes at a predetermined date. The second rate will be adjusted to the market rates at the time of the shift, which can work to your advantage or detriment. When the rate shifts, the borrower has the ability to decide between a fixed or variable interest rate for the duration of the loan.
Balloon mortgages have much shorter terms and begin with a fixed rate of regular payments and fixed interest rates for a predetermined period of time. After this it “balloons” and the rest of the remaining balance is payable with a one-time payment at the end of the loan term. Though this sort of loan entails lower interest rates in the initial years, it requires the borrower to gamble that they will have the funds to make the large payment at the end of the loan period, which often hinges on their financial situation remaining stable, or the property maintaining its value.
In addition, there are conventional loans – which are not guaranteed by the government – and options such as Federal Housing Administration (FHA), Veterans Affairs (VA), and Department of Housing and Urban Development loans (HUD), which may be an option for borrowers who qualify.
The good news for prospective homeowners is that home loan rates are currently at one of the lowest levels in decades, hovering at below 4% for 30-year and 15-year-fixed rate mortgage loans. With additional options for 10-year mortgages and 20-year loans as well, and rates at their current low, this may be a great time to lock down a fixed-rate option.
For a selection of online lending companies who can give you an idea of what you’ll pay or how refinancing your mortgage rates will look, click here.
There are a number of laws and regulations in place in the US to protect borrowers. On the federal level, these include a series of laws such as the Truth in Lending Act – which establishes disclosure requirements for lenders – and the Fair Housing Act, which bans discrimination based upon race, gender, religion, or nationality. Federal and state regulations are meant to uphold fairness in the lending process, and also to safeguard the financial information of home loan borrowers.
Before taking out a loan, it is important for you to know the relevant state and federal regulations that apply to it and that your mortgage lender adheres to them.
There are always risks when borrowing and there are consequences if the mortgage loan is not paid off, for example you may be reported to a collection agency and face financial and credit score penalties. Regardless of the length, 10-, 15- or 30-year mortgages , all require repayment. Borrowers must agree to pay back the home loan in a particular amount of time and if they are unable to do so they face legal implications.