Home Purchase FAQ

What is a home mortgage?
A mortgage is loan that is obtained for the purchase of real estate. The actual term mortgage means a lien or legal claim on the home or property which is the security on the debt. All mortgages have a principal amount and an interest rate that accrues over the life of the loan.

What types of home mortgages are available?
Home mortgages fall into two categories: fixed rate mortgages (FRMs), and adjustable rate mortgages (ARMs).

What is a fixed rate Mortgage?
A fixed rate mortgage is a type of loan where the interest rate is locked in at a specific percentage at the beginning of the loan and the ensuing monthly payments remain the same throughout the entire term. Fixed rate mortgages are extremely predictable and enable you to easily plan and budget your monthly payments.

 

What is an adjustable rate mortgage?
An adjustable rate mortgage is a loan in which the interest rate varies over the life of the loan, usually according to a specific market index. Monthly payments may increase or decrease depending on the market rates; because of this, some ARMs cap the amount to which the payment can increase.

What are the typical term lengths for home mortgages?
The typical terms for mortgages are 15 years, 30 years, and 40 years. Remember that the shorter the life of the mortgage, the lower the interest rates. Conversely, this also means a larger down payment and greater monthly payments. The most common mortgage term is 30 years.

Should I choose a fixed rate or adjustable rate mortgage?
That depends on your individual situation. Make sure to look into both fixed rate mortgages and adjustable rate mortgages and compare them. Take into account to your situation and needs before making a decision. In general, a fixed rate mortgage is a good choice if you want a stable, predictable loan. Adjustable rate mortgages should be considered in situations where your income will be increasing, you're in your home for under five years, or you believe the market interest rates will fall.

What does LTV, or Loan-to-Value mean?
LTV, or the loan to value ratio, refers to the amount of money a debtor borrows compared to the appraised value of the property or home they are purchasing. Every loan will have a specific LTV limit, which means you can only borrow up to that percentage of equity (value) in the home. The lower the LTV value the less money the home buyer would have to put down; in very high LTV loans a lender will usually require mortgage insurance.

What is mortgage insurance?
Mortgage life insurance is an insurance policy that guarantees repayment of a mortgage loan in the event that the insurance policy owner can't make their mortgage payments. It should be noted that this insurance protects the lender, not the borrower. If the borrower is unable to pay his or her mortgage payments, they could still lose their house in foreclosure.

What is mortgage title insurance?
Mortgage title insurance is an insurance policy that protects the lender of a home mortgage from future claims to ownership of the sold property. It is usually required by the lender as a condition of giving the mortgage.