Information on Mortgage Loans

Functions
Mortgages can either have a fixed interest rate for that life of the loan or an adjustable rate of interest. Fixed interest rate loans offer the advantage of not rising when interest rates rise and fixed monthly payments that may make budgeting easier. Adjustable rate mortgages often possess a lower introductory rate for the first three to seven years after which adjust periodically, typically annually, after that. These loans are advantageous because when interest rates fall your payment will go down and never have to refinance. However, if interest rates rise, your payment increases.

Size
The amount of money that you need to borrow for the mortgage will determine whether you are eligible for a conforming loan or if you want a jumbo mortgage. The conforming loan limits are set by Fannie Mae as well as show how large of a mortgage Fannie Mae has the capacity to securitize. If your mortgage exceeds these limits, which may be adjusted annually, you will have to take out a jumbo mortgage which often has higher interest rates and more stringent eligibility needs.

Considerations
When considering a mortgage, you need to first figure out how the monthly payments will fit into your spending budget. Typically, lenders do not want the monthly payment along with other mortgage expenses such as private mortgage insurance, property taxes and homeowners insurance, to exceed 28 percent of the pretax income. For example, if your monthly earnings is $6, 000, you would not want your own monthly mortgage payment to exceed $1, 680. Additionally, if you have other existing debt such as student or auto loans, your total debt payments should not exceed 36 percent of the monthly income. For example, with a $6, 000 month-to-month income, lenders would not want your total financial debt payments to exceed $2, 160.

Types
A few federal agencies have special mortgage programs to help people in getting a mortgage. The Department of Veterans Affairs provides backing with regard to mortgages for veterans which enables the veterans to buy a home with no down payment. The Federal Housing Administration offers a program open to everyone that backs mortgages with as little as the 3. 5 percent down payment. These programs possess extra origination fees, but do not allow the lender to cost for private mortgage insurance which makes them a very attractive option for those who want to buy a home but cannot afford a sizable down payment.

Time Frame
Mortgage terms vary broadly. The most common terms are 15 years as well as 30 years. The longer your mortgage term, the low your monthly payment but the more you can pay in interest over the life of the mortgage. With a shorter term, your monthly payments is going to be higher, but you will save a significant amount of interest since you are borrowing the money for much shorter time period.