A mortgage is the largest expense that homeowners will have to pay in their lifetime.

Homeowners, particularly first-time homeowners, can easily become confused with the terms and conditions of understanding a mortgage. But because this is a loan that will follow you for fifteen to thirty years, it's essential to fully understand the loan agreement and mortgage basics before signing your name to anything.

Key Mortgage Terms

The three most important terms that you need to become familiar with before entering into any mortgage are: term, rates, and cost. The term of the mortgage refers to the amount of time that the homeowners will have to fully pay off the loan. This is generally between ten and thirty years. The longer the term is, the lower the monthly payments will be. However, if you choose a shorter term, the interest rates will generally be lower.

The rate refers to the interest rate. This is basically the amount of money the lender will charge for providing you with the loan. Rates will vary depending on the homeowner's credit history, how much of a down payment is made, how much income the homeowner makes, and the price of the home that is to be bought.

Costs generally refer to the closing costs, which are incorporated into every mortgage. These include appraisals, administrative fees, and attorney fees. Some mortgage packages include a "no costs" offer but the rest of the mortgage package needs to be carefully reviewed before determining if this is actually saving the homeowner money.

Finding the Best Rates

When it comes to financing a home, you want the best deal available to you. The good news is that there are many different options available for homebuyers from local lending companies and banks to a mortgage broker that can be found online. A mortgage broker should be working in the best interest of their client in terms of rates, monthly payments, and the life of the loan. It's important to speak to the mortgage companies first as then you can truly know what you can afford and you will be able to compare companies beforehand to determine if you will have a good relationship with them before entering into any long-term agreements.

Adjustable Rate Mortgages

Adjustable rate mortgages may seem like the perfect solution for some and a huge risk for others. This is because with adjustable rate mortgages, the monthly payment of the mortgage is determined by the interest rates for that month. While it makes for a varying monthly payment, these can be a great fit for first-time homeowners or for those that are only looking to live in their home for a short time and then sell. When the mortgage is at an adjustable rate, it's important to continuously review the interest rates so that you can switch into a fixed rate mortgage by refinancing your home. This will save money for the long-term.

Pre-Payment Options

Paying off a mortgage early can be a great feeling and there are a few simple steps to do it. The first is to pay a little bit extra on the principle of the loan every month. As little as twenty extra dollars a month can add up in a hurry and will considerably shorten the term of the loan. The second step that can be taken is to make an extra payment in full once a year. This will also lessen the loan's term by a few years. The third is to put any extra money available back into the home. This is either by giving it to the lender to pay on the principle or by making home improvements. The biggest areas that are looked at by buyers are the kitchen and the bathroom so to boost your home's resale value, start with these homes first.

If you are interested in prepaying your loan, you need to carefully review your mortgage agreement. Many companies will have a fee for prepaying a loan and it's usually a predetermined amount, or a percentage on the amount of loan that has yet to be paid. These prepayment fees are most commonly found in high-interest and high-risk loans.

Interest Only Mortgages

An interest only mortgage provides a homeowner with the opportunity to only pay the interest of the home for the first few years of repaying the loan. This makes the payments significantly smaller and the principal that is not being paid will be distributed throughout the rest of the loan. When first looking at homes to buy, be sure to calculate exactly what you can afford by determining an amount that includes both interest and the principle so you are not in a bad position when the interest only period ends. When taking out one of these loans, it's important to have the loan agreement stipulate when the principal will be paid and to also pay for as much of the principal when you are able to.