Whether this is your first home or fourth, really understanding your mortgage and how it works is crucial. After all, it’ll probably be the biggest loan of your life!
What Is A Mortgage?
In the most basic sense a mortgage is a loan to buy a property. The process of securing a mortgage means lender approval based on your income, credit rating and other debt.
Understand Your Fixed Costs
Before you decide what you can—or should—spend on a mortgage it’s important to take stock of your habits and your true fixed costs. Be honest with yourself when putting together your household budget, if you’re going to be miserable without your daily premium cup of coffee, then along with your student debt and car payments, consider that a fixed cost.
Paying Off Your Mortgage
Once you’re approved for a mortgage and buy your home (congratulations!), now you have to actually start paying off the loan. There are several factors involved in this like your interest rate, payment schedule (monthly, twice a month, every two weeks, or weekly) and your amortization period, which is the amount of time you’ve selected to pay back the mortgage (usually ranging from 15-25 years).
Picking The Right Interest Rate
The interest rate at which you select to pay off your mortgage varies from “fixed”—whereby the rate will NOT change for the term of the mortgage, and is generally a bit higher but considered more stable, or “variable” whereby the interest rate can fluctuate with the current state of the market.