What are Mortgages?

By definition, a mortgage is used by purchasers of real estate to raise funds to buy real estate. On a basic level, it is that simple. A person needs money for a home, asks a financial institution and agrees to the terms. But there is a myriad of complex stipulations that change mortgages from person to person. To help navigate this minefield, Century 21 has created this blog on the different types of mortgages there are.

Fixed & Adjustable Rate

mortgage helpWhat is the rate? – The rate is shorthand for the interest rate. You pay interest on the amount of money borrowed. That means that you pay the amount you borrowed plus the interest amount.

Fixed-Rate: This means that throughout your mortgage the interest rate will be the same. If you receive a loan of 200,000 for thirty years with a fixed rate of 5%, you will pay that 5% forever.

Adjustable-Rate: Also known as the ARM, or adjustable-Rate Mortgage, means that your interest could adjust per year either for the benefit of you or the bank. This often is given to people who don’t have a lot of upfront capital but have a long-term investment strategy the institution can get behind. A common ARM loan is known as the 5/1 which means that for Five years, you will have One interest rate. Then it will change.

Conventional and Government Insured

Most home loans are conventional, meaning that they are between the buyer and the institution and that’s it. But there are government insured loans that will help you purchase the home.

what are mortgagesFHA – The Federal Housing Administration mortgage is insurance from the government that will help you if you default on your loan. This lowers the entry price you have to pay for the loan, but it also increases the monthly payment because you are now paying for the home plus the insurance from the FHA.

VA – The veterans affair associations provide loans for people in the military service and their families. Depending on your eligibility, this means you can get your home for a greatly reduced price, already paid for and much more.

USDA/RHS – The Department of Agriculture and the Rural Housing Service will help you buy houses in areas if they are difficult to live in. The department of agriculture will help pay for your home if you use it for farming purposes. The rural housing service will help you buy houses on the outlier of city limits because it helps expand the region.

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