A short and simple guide to home mortgage loans

For buying a house, it is necessary for most people to take out a home mortgage. Mortgage loans are big loans which are sanctioned by keeping your house as collateral. If you’re planning to buy a house in the near future, then you must conduct a good deal of research about home mortgage loans. This article describes about the types of mortgage loans and provides guidelines to understand how much house you can afford.

Home mortgage loans: Types

Mortgage loans can be of many types. There can be amortizing mortgage loans and non-amortizing mortgage loans. In case of amortizing mortgage loans, both the interest rates and the principal amount would have to be paid within the term of the loan. On the other hand, in case of non-amortizing loan, only the interest rates would have to be paid during the term of the loan. The principal amount would have to be paid at the time of loan maturity. Amortizing home mortgages can be of 2 types:

  • Fixed rate mortgage – The interest rate for a fixed rate mortgage remains the same for the entire term of the loan. In case of a fixed-rate mortgage, you’d not have to worry about fluctuating interest rates due to changing market conditions.
  • Adjustable-rate mortgage – In case of an adjustable-rate mortgage, the interest rate can keep on changing from time to time. It can remain fixed in the initial years, after which the rates will fluctuate. The interest rate in the initial years can be quite low as compared to the interest rates of fixed rate mortgages.

How much house you can afford?

Before taking out a mortgage, it is very important to consider how much house you can afford so that you can make proper payments for your home mortgage. Lenders have their own criteria to figure out how much house you can afford. These include front-end ratio, back-end ratio etc. You should also analyze how much mortgage you can borrow. Follow the guidelines given below:

  • Obtain a clear understanding of your financial situation by analyzing your total monthly income and your overall monthly expenses. Consider all forms of expenses including payments for your debts.
  • Include the additional costs that come along when a house is bought. For example: property taxes and maintenance costs.
  • Include your future plans. For instance: If in a few years you’ll be required to spend money on your kid’s college education.
  • After a thorough understanding, check if you can cut down on your monthly spending. Try to omit unnecessary expenses. Calculate how much money you’ll be left. According to that, you can figure out how much payment you can make for your mortgage.

Keep in mind the above mentioned guidelines while you take out a home mortgage for buying a house.

 

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