Home Mortgage
Many people dream of owning a home. But the high cost of a home usually means you have to borrow money to buy one. A home mortgage is a loan made for the purpose of buying a home. It’s usually the biggest loan you will ever get, and it can be complicated. Here are the basics of home mortgage loans.
A home loan mortgage is a secured loan. That means the land and the home on it are collateral backing your promise to repay the loan. If you do not repay the mortgage loan in accordance with the terms in your mortgage loan agreement, then the lender has the right to take the land and home from you, leaving you with nowhere to live.
The loan principal is the amount of money that you actually borrow and use to buy a home. Interest is the money added to the amount you owe periodically to compensate the lender for the lost use of his money during the period of the loan. Each payment you make to a lender includes a portion of the principal and the interest. So the principal you owe shrinks with each payment and the amount of interest that accrues each month also shrinks.
A new home mortgage loan is typically made for a period of 30 years, although in times of very high home prices or high interest rates loans may be made for longer periods to make the monthly payments affordable. Many people look only at the monthly payment, but that is a short-sighted mistake.
The interest rate of a home mortgage loan is critical. A small difference in the interest rate paid on a mortgage loan translates into tens of thousands of dollars over the term of the loan. Even after you buy a home, you should keep a close eye on home mortgage interest rates and refinance your mortgage when it makes economic sense to do so.
To refinance home mortgage loans, a new lender offers a lower interest rate to induce the borrower to borrow money from him to pay off the existing mortgage loan. Now you owe the new, refinancing home mortgage lender. Your monthly payment may or may not change up or down, but the total interest you pay on your home mortgage loan should be lower over the term of the loan. Otherwise, it makes no sense to refinance home mortgages.