Mortgage Basics
Understanding the fundamentals of home financing empowers you to make the best decisions for your future.
Fixed vs. Adjustable Rates
A fixed-rate mortgage keeps the same interest rate for the life of the loan, offering predictable monthly payments. An adjustable-rate mortgage (ARM) has an interest rate that may change periodically depending on changes in a corresponding financial index.
Loan Terms
The term is the length of time you have to repay the loan. The most common terms are 15-year and 30-year. A shorter term means higher monthly payments but less interest paid overall.
Down Payments
A down payment is the upfront portion of the home's purchase price that you pay out of pocket. While 20% is traditional, many programs allow for much lower down payments, sometimes as low as 0% to 3.5%.
Closing Costs
These are fees associated with finalizing your mortgage, including appraisal fees, title insurance, and origination fees. They typically range from 2% to 5% of the loan amount.
PMI (Private Mortgage Insurance)
If you put down less than 20% on a conventional loan, you'll typically need to pay PMI. This protects the lender in case you default on the loan.
Escrow
An escrow account is set up by your lender to pay certain property-related expenses, like property taxes and homeowner's insurance. A portion of your monthly payment goes into this account.
