A Mortgage Primer

If you're one of the many people who may be contemplating taking advantage of the current housing downturn as an opportune time to buy a home, just remember that there's more than a great price that you should be looking for. After all, a great purchase price can quickly evaporate if you don't procure a good mortgage.

If you haven't had a mortgage before, you're in the right place. This article (and others you'll find in this section) will teach you what you need to know. For beginners, a mortgage is actually a security document that makes your home the collateral for the loan you used to buy it (though the term is often used interchangeably for the loan itself). When searching for the best mortgage, here are a few important questions that you'll need to consider:

Which mortgage term is right for me?

Most mortgage loans are created on the basis of a 30-year repayment plan, but they can vary from 10 to 30 years or more. When you consider the term you want, decide how much you can comfortably pay each month. Remember to take into account homeowners insurance and other expenses when making these calculations. The shorter the term you choose, the higher your overall monthly payment will be, but the more you'll save in interest charges over the life of the loan.

What's the interest rate of the loan?

Interest is essentially the price you pay the lending institution for the use of their money. For real estate, this fee generally ends up being very expensive. Over the course of a 30-year loan, for instance, most interest payments amount to around one-and-a-half times (or more) the price of the house itself. Of course, the lower the interest rate, the lower your monthly- and overall payments. Lenders typically compete fiercely in the marketplace, so shop around for the lowest interest rate that you can get.

What other costs will I be paying?

When obtaining a mortgage, there are a number of other costs to be concerned with in addition to the property's price and the loan's interest rate. You'll likely have to contend with at least a few fees that fall under the heading of closing costs. These are charges that are levied for a wide variety of items and services related to the purchase of a house, including recording fees, appraisal fees, attorney's fees and anything else that's needed to qualify, process and complete a real estate deal. The total amount of these fees can be substantial. It's therefore important to find out what fees will be involved in your particular purchase and whether you'll be expected to pay all or a portion of them at your mortgage closing proceeding (many, if not all of the costs, are negotiable between the seller and buyer).

Buying a home is a big step in anyone's life, and it can be somewhat intimidating if you don't know what to expect. Do your homework, know what you can afford and are comfortable in paying, and work with your lender to find a mortgage program that will best suit your needs.