Here's what you need to

know about Mortgages.

Mortgage 101

The term of a mortgage refers to the number of years the mortgage is established for. Mortgage terms are generally 15, 20, 30 and 40 years. The vast majority of mortgages are 30-year mortgages.

When considering the term of the mortgage to apply for, keep in mind that only highly qualified applicants will be approved for 15 and 20 year mortgages. These shorter term mortgages have substantially higher payments, but the homeowner can save hundreds of thousands of dollars over the life of the mortgage by paying less interest.

Benefits of Short-Term Loans
Those considering a 15 or 20 year mortgage in order to save interest in the long-term can also apply for, and obtain, a 30-year mortgage and make additional payments towards principle. Remember to find out precisely how to make these extra payments. Some lenders take the extra payment and apply it to the following month's payment rather than directly towards principal. Others will apply it toward the principal, so find out what you need to do to apply it properly.

Also, keep in mind that most real estate contracts will have a mortgage contingency clause that gives you an "out" in case you are not approved for your mortgage. In most cases, the contingency clause is based on your ability to be approved for a 30-year, fixed-rate mortgage, so failure to get a 15, 20 or 40 year mortgage would not be sufficient grounds to terminate the contract and get your down payment back.

New, Longer-Term Mortgages
40-year mortgages do exist, and some lenders are even offering 50-year mortgages. These longer term mortgages will lower your monthly payment, but they will also result in a much higher life-time payment since you are paying interest over an additional 10 or 20 years. These mortgages are popular with those homebuyers who need to keep their initial payments low and expect to refinance down the road.

The Adjustable Rate Mortgage
Added to all of this talk about terms is the fact that you may also apply for an adjustable rate mortgage, or ARM. These mortgages are generally 30 years long. The ARM starts with fixed-rate interest for the initial period (generally 3, 5 or 7 years) and then becomes adjustable rate (based on prevailing rates at the time) for the remainder of the term.

What Terms are Right for You?
The right mortgage term for you will depend on your unique circumstances. That's why it's important to have a realistic idea of your future plans and discuss them with your mortgage lender. Ask for amortization schedules so you can see the difference in monthly payments and overall payments based on the various mortgage terms available to you. An informed decision is the best decision.

* Copyright 2006, Brandon Cornett. You may republish this article if you keep the byline and author's note, and also leave the hyperlinks active.

What to look for in a lender

Choosing the right lender for your new mortgage requires research. There are as many types of lenders to choose from as there are mortgages. Mortgage lenders come in the form of traditional credit unions and banks, your local mortgage companies, online mortgage lenders, and non-traditional lenders. Here are several tips to help you do your homework and find the right mortgage lender for your financial situation.

Finding an Honest Mortgage Lender

Taking out a loan from a dishonest mortgage lender will cost you a lot of money; a predatory mortgage lender could even take your home. Most lenders are above the board and do not take advantage of their borrowers. Dishonest mortgage lenders have a number of scams they use to overcharge for loans. These predatory lenders inflate their fees and interest rates while pocketing the profit. Other dishonest lenders structure their mortgages to make repayment impossible for the borrower, ensuring the lender will take the home at foreclosure.

Protecting yourself from dishonest mortgage lenders is easier than you think. When you comparison shop from a variety of mortgage lenders and brokers you will know what fair rates, fees, and closings costs are for a borrower in your financial situation. Check with your State Attorney General to see if the lender you are considering has any consumer complaints. Mortgage lenders are regulated in every State with the exception of Alaska.

Beware Push Lenders

If you are working with a lender that is pushy or is trying to use pressured sales tactics on you, this is a sign that could be dealing with a dishonest lender. Never allow a mortgage lender talk you into a loan that you don’t want or need. To learn more about your mortgage options including common mistakes to avoid, register for a free mortgage guidebook.

Mortgage Terminology

Your mortgage is one of the largest investments you make. Choosing the right loan is important and will help you avoid making a 15 or 30 year mistake. Before applying for a mortgage it is important to familiarize yourself with basic mortgage terminology; here are the basic types of mortgage loans to help you get started on the right foot.

When your parents applied for a mortgage there was typically only one option available to them: a traditional 30 year mortgage with a fixed interest rate. Today there are dozens of choices and options for your loan, ranging from fixed to adjustable interest rates, jumbo mortgages, and option loans. Here are the basics you need to know.

Fixed Interest Rate Mortgage Loans

The most popular variety of mortgage is the traditional loan with a fixed interest rate. Fixed means the interest rate and monthly payment do not change over time. Homebuyers who want predictable payment amounts with little or no risk will find a 30 year fixed rate mortgage to be their best option.

Adjustable Interest Rate Mortgage Loans

Adjustable rate mortgage loans come with lower interest rates than a comparable fixed rate mortgage, at least initially. Adjustable rate mortgages typically come with an introductory interest rate that will change at the end of the introductory period. This type of mortgage is “adjustable” because the mortgage lender will change your interest rate and payment amount at regular intervals specified in your loan contract. The interest rate is tied to a financial index and will rise and fall based on changes in the index when the lender adjusts your mortgage, often every year on your loan’s anniversary date. You should only consider an adjustable rate mortgage if you can handle changing interest rates and payment amounts.

Jumbo Mortgages

There is a limit that traditional mortgage lenders well lend. This amount is called the conforming mortgage limit and is set by the institutions in the United States that regulate the mortgage industry, known as Freddie Mac and Fannie Mae. In 2006 this limit is $417,000. If the home you are purchasing is over this limit you may be required to seek your mortgage from a specialty mortgage lender. These specialty mortgages are called “Jumbo” mortgages. Jumbo mortgages come with higher interest rates and fees than traditional mortgage loans so it pays to shop around from a variety of Jumbo lenders.

Balloon Mortgages

Balloon mortgages are a special type of loan intended to provide short term financing only. The term length of a balloon loan is very short, often only five to seven years. At the end of the term the entire loan balance is due. This large payment is referred to as a “balloon” payment. This type of mortgage is useful for real estate investors and homeowners in certain situations; however, it is often abused by predatory mortgage lenders. Unless you know exactly what you are getting yourself into you should avoid this type of mortgage.

You can learn more about your mortgage options, terminology, and common mistakes to avoid by registering for a free mortgage guidebook.

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Mortgage Terminology Mortgage Information A to Z of mortgage terms from ARMS to Wraparounds.