Simply speaking, mortgage is a loan you receive for buying a house or an apartment. Considering current real estate prices, it’s hard to imagine an average human being having quarter a million in cash or on their savings account. That is why this whole complex system was created. Let’s break it down for better understanding.
How Mortgages Work
A mortgage allows you to purchase a dwelling place for a small part of its cost. This part is called the down payment and it differs case to case. A private mortgage firm or a bank takes care of the amount of money left to pay.
You and the institution of your choice agree (on the official basis, of course) that you repay them the sum they lent you. Besides, you have to pay interest as well, which may make the final amount increase considerably. The time during which the repay must be made is called a term and it can be up to 30 years.
In order to make sure the money will come back, your newly bought home is put as collateral. As the result, in case you don’t pay the firm/bank in time, they can use foreclosure. Basically, this means they can take the house/apartment/etc. from you.
A typical mortgage consists of four components:
This is the initial amount of money the institution lends you to buy property. Its size depends on the down payment you agree to make, your income, credit history, etc. The bank/firm decides how much it can give you.
This is the cost you pay to the lender for supplying you with enough money. The rates are usually 5-6% but again, it depends on your income, the sum you paid, the sum they paid, etc.
This is a percentage you can pay separately to the city, country, school district, etc.
This is a regular insurance payment of protection from all kinds of disasters you can lose the property in.
Note that you can pay taxes and insurance separately from the rest of the money only if you’re not a high-risk borrower.
Searching for the Best Mortgage
Not all mortgages are the same, of course. If you don’t pay enough attention to the details, it may lead to foreclosure. Some institutions restrict you from buying property for several years, some lead to huge tax bills or poor credit score. Choosing the right partner in this agreement can cost or save you thousands, so make sure you approach it with the highest caution.