Mortgage Loans

What are the basics of applying for a mortgage loan?

Would you like to own your own home? Then you need to understand the basics of a mortgage loan. Mortgage loans are obtained from a bank or other reputable financial institution, such as a credit union or mortgage company. The property being purchased is used for collateral to secure the loan.

Mortgage Loans :

The prospective home buyer must submit an application to the bank or lender in order to secure a mortgage loan. The buyer will provide their employment and credit history, the property's purchase price and the amount of cash to be used for down payment

The amount the bank agrees to finance, plus the down payment equals the purchase price of the home. Additional costs include the appraisal fees (so the property is sold at fair market value), application fees, credit report fees, and points. If these are costs combined together, it's called an origination fee.

Points are an additional interest fee charged at the beginning of the loan. The higher the amount of points paid up-front, the lower the overall interest rate. And the lower the points, the higher the interest rate will be for the life of the loan. There are zero points loans, but these loans generally have a much higher overall interest rate.

The standard length of loan repayment is usually 15 or 30 years and is called the loan term. The amount the buyer will pay back on the loan each month is determined by a process called amortization.

The total amount originally borrowed is called the loan principal. Added to this is interest. The mortgagor charges the buyer interest in return for loaning the buyer the money to purchase the house. The interest rate is determined by current economic factors. The principal is combined with the total interest charged and then divided into monthly equal payment amounts for the term of the loan.

Through amortization, at the beginning of the loan, more money will be paid towards the interest owed. Near the end of loan term, when the interest has been paid down, the majority of the monthly payment will be applied towards the principal.

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