Do you know that there are many people out there who do not truly understand exactly what a mortgage is? This is worrying, particularly when you consider how many mortgages Florida has to offer. Without knowing exactly what a mortgage is, you stand to make a very poor decision and end up with a bad deal that you are tied to for 25 years.
What Is a Mortgage?
Very simply put, a mortgage is a type of loan that is used specifically for the purpose of buying real estate. The collateral of the mortgage is the property you want to purchase. Essentially, you need to find a lender who is willing to borrow you enough money to buy a piece of real estate, and in return, you agree that the lender can take the real estate away from you if you do not pay them back properly. This means that, if you don’t make your mortgage payments, the lender will repossess your property.
Mortgages, for borrowers, are about more than buying a piece of real estate, however. This is because, on average, a mortgage will last between 10 and 30 years, making it a huge financial commitment. Very few people are able to save up sufficient cash to buy a house outright. Instead, they use a mortgage, which gives them the opportunity to do things they would otherwise not be able to do. Often, buying a house is a step towards independence as well, which goes to show that it is about so much more than just getting money to buy something. The lengthy commitment can be very daunting, however, which is why you need to manage your money smartly so that you truly understand the benefits.
One confusing issue is the number of different mortgages out there. Some have fixed rates, others have variable rates. Some last 10 years, others 15, 20, or even 30 years. And then, there are combinations of each of these types of mortgages. If you have a fixed rate mortgage, it means that, for the period of time you agreed to fix it for (such as the lifetime of the loan, or five years, or anything in between), you will pay the same rate of mortgage. With an adjustable or variable mortgage, however, your rate of interest will be tied to the federal lending rate, which can change every quarter. If their rates go up, you will pay more, but if the rate goes down, you will pay less.
How long you have a mortgage is also important. The longer the loan, the higher your interest rate, but the lower your monthly payment. For some, paying the mortgage of as quickly as possible is all they want, but affording the monthly payments associated with this is unaffordable. Hence, you need to think about what you can afford, including the interest, and make payments according to that. This will determine what the right mortgage length is for you as well. Do make sure you speak to a financial advisor, therefore.