Here's a short beginner's guide to understanding home loan and mortgage.
The Basic Elements of a Mortgage

A home mortgage can be understood through answering a few basic questions:

- What is the principal?
- What is the interest rate?
- What is the term?
- What will the mortgage repayments be?

The principal is simply the amount of money you are borrowing from the lender. If you are buying a $300,000 home and you seek a loan for $250,000, the $250,000 is your principal. That is the amount of money you need to pay back to the bank.

The interest rate is how much the lender will charge you for borrowing the money. Good rates right now are just under 7%. If you get a “fixed rate,” this means your loan will be locked in at the interest rate you start with. This is good if rates go up, but it can be painful to watch rates go down and feel stuck with a higher rate. A “variable rate” means that your interest rate will fluctuate with the market. While this might sound more flexible, you should also remember that it was variable rate mortgages that was one of the main causes of the recession in the United States.

When it comes to interest rates, don't forget that you can get your home loan refinanced later on if you meet certain qualifications.

The term is how much time you have to pay off the mortgage. Most home loans have terms of 25 or 30 years.

The repayments is the monthly amount you pay the lender. Some of that money covers the interest of the loan, some of it goes towards your principal.

Understanding the basic elements to a home loan is the first step in qualifying for a loan of your own. The explanations above provide a basic introduction to how loans work, to better understand how much you can borrow, contact one of our consultants.
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