Here's a short beginner's guide to understanding home loan
The Basic Elements of a Mortgage
A home mortgage can be understood through answering a few
- 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
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
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
Now for Mortgage