Put simply, a mortgage is a type of loan used to finance your home purchase.
When you obtain a mortgage loan from a lender, they cover the cost of the home upfront to make up the difference between the sale price and your down payment. You must then pay the lender back in small increments over the loan’s term—usually 15 or 30 years.
Your monthly mortgage payment doesn’t just go toward the loan’s principal—you’re paying for other expenses as well.
How consistent your payment remains over the loan’s term is primarily determined by the mortgage rate you choose.
If you get a fixed-rate mortgage, then the loan term and interest rate will remain consistent unless you refinance. This means that you may only see payment fluctuations due to changes in property tax rates, homeowners insurance rates, and PMI.
If you get an adjustable-rate mortgage, you may see more substantial fluctuations after the first few years of your loan’s term, as the interest rate changes with the markets (typically every six months to a year).
You should carefully review the loan terms to see how far up the interest rate can go, since this can substantially change the cost of your mortgage over time.
Aside from fixed-rate and adjustable-rate mortgages, there are different types of mortgage loans that buyers can choose from based on their needs and qualifications as a borrower.
This list isn’t comprehensive, so speak with your advisor about which loans are available for your unique situation.
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