Few people have the financial ability to purchase a home outright. Most homebuyers need to finance their purchase through what is known as a mortgage. A mortgage is usually thought of as a loan that you obtain from a lender to purchase property. In actuality, it represents your legal claim to a piece of property when you secure a promise to pay the amount loaned to you by a lender. All mortgages have two features in common: principal and interest. Before the home can be considered yours, both amounts must be paid in full, usually through a monthly repayment schedule spread over several years. Generally, the size of your monthly mortgage payment is affected by the amount of your down payment on the home, the size of the mortgage loan, the interest rate, the repayment term, and payment schedule. Since mortgages can come in many different combinations of interest rate, duration, and fee structure, which loan you should choose depends on how long you plan to remain in the home and the monthly payment you can afford. For example, the conventional 30-year fixed-rate mortgage is typically the most popular among borrowers, as it offers the security of a fixed monthly payment amount that remains steady even if economic conditions cause interest rates to rise sharply. A 15-year loan gives you the benefit of a shorter loan life, so you pay significantly less in total interest on the loan, but you have to pay more each month compared to the 30-year mortgage. Still, if you plan to relocate within a few years, you may find an adjustable-rate mortgage more sensible, as it has lower initial interest rates. Basically, there are many types of lenders and mortgage loans you can choose from. Since a mortgage payment will most likely be your largest financial responsibility each month, take your time researching which mortgage is right for you.
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