To purchase a house, the majority of people need a mortgage loan. It differs from other kinds of loans — for it, you’ll have to sign a trust deed and a promissory note. This note will give you personal responsibility for such things as irregular payments. The property will have a lien placed on it so the lender can sell it in case you don’t pay regularly.

What to Begin With?

So, you want to apply for a mortgage loan. What should you do before it? Firstly, you’ll need to get your yearly credit history report and improve your credit rating as much as you can. Don’t apply till you save a 20% down payment. Of course, it’s not obligatory — the down payment may be lower, but in this case, you’ll have to pay more every month. Also, many lenders take additional escrow payments.

Types of Mortgage Loans

Mortgage loans can have different interest rates. We recommend you to learn about all of them, in order to make a better choice.

Which mortgage loan types are the most common nowadays?

• Fixed-rate mortgage. It’s a loan with a period of 10-30 years and an unchanging interest rate. Most people prefer the longest, 30-year variant because it has the most affordable payments. Such loans are the most stable ones and don’t carry any additional risks. That’s why they’re so popular.
• Balloon mortgage — a short loan with low, stable monthly payments and one big final payment.
• Adjustable rate mortgage. It’s rather risky since the payment is not stable. However, such a loan can help you get a bigger loan amount in case its starter rate is not very high. If you’re going to apply for an ARM loan, you’ll need to be aware of rate-changing conditions, increased capping, and other details. Some arm loans have lower rates at the beginning but change after a determined period. Also, there are ARMs that consist of several stages with varying interest rates. For instance, an 8/2 ARM loan has a fixed rate for eight years, and then it will start to change.
• Negative amortization and interest-only mortgages. They are the types that you should stay away from. Usually, mortgage loans have amortization. It means that you have to pay principal and interest. When the principal payment is made, the interest becomes smaller, and the extra money goes to the principal instead of it, creating a balance. These two types of loans are extremely risky since regular payments are less than interest rates. It leads to growing debts, which can become even bigger than the total cost of the property.

Refinancing the Loan

If the interest rate decreases, you have the possibility to refinance the loan. With a special calculator (you can find lots of them on the Internet), figure out if it would be useful or not, taking into account all the closing costs. Ask the lender to refinance the loan with smaller closing costs. When your mortgage has been paid off completely, get a release deed from your lender and take it to the county recorder. And that’s all!