The Truth About Mortgages and Home Loans

So you have finally decided to own your home, something permanent, and something that is most likely at a high cost. Presumably, you would require a home loan to be able to purchase that dream house of yours.

A home loan is often used in conjunction with mortgage. These two terms have a slight difference though. As implied, a home loan is a kind of borrowed money specifically to purchase a house, while a mortgage is the actual agreement to ensure that your home loan is approved. Mortgage is a type of pledge the borrower states wherein the house can be given should payment for the loan is not made. These all works upon the agreement of the borrower to pay the amount and interests, with the value of the property as a guarantee.

Home mortgage loans come in different types as well. The most common category is the fixed rate mortgage wherein the interest rate of the loan remains the same throughout its term, most common would be 15 years or 30 years, but 40- or 50-year terms have been made available, including shorter terms. This type of mortgage has different types of interest rates, such as compounding frequency, loanable amount and mortgage terms. Thus specific calculations of the payment by the borrower on a monthly basis are computed within these parameters.

The second category is the adjustable rate mortgage loan wherein the interest rate adjusts or "floats." The index and caps change over a certain period. The most common caps are 1-year constant maturity, COFI or the Cost of Funds Index and LIBOR or the London Interbank Offered Rate. Thus, payments made by the borrower change over time as well as the term of the loan.

Other mortgage loans are specific or customized by the lenders. These are mortgages that have amortizations, graduated payments, balloon payments or interest only, among others. What is common though is a fixed rate for a certain period and can have payments independent of additional requirements needed for the house. Additional payments such as taxes and insurances are also not included.

What you should note though is to find the home mortgage loan that best suits your needs. Do not just go for the common one as you might realize later on that other options would have done better for you. As a prospective homeowner, weigh down all of your options. Do not hesitate to ask questions and discuss it with a professional before making a decision.

Julia Vakulenko is a licensed broker associate with Tampa4U.com Realty. She has one of the hardest working Tampa Real Estate team in Florida and also in2Va Team in Northern Virginia.

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