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.

Homeownership has been sufficiently discussed on many online sites and articles. However, we receive thousands of inquiries each month that make palpable that there are many misconceptions about homeowner loans. The consequences of homeownership on credit assessment, income assessment and loan approval are ignored by most of the personal loan applicants regardless of the loan type they are seeking. Therefore, it is important to clear out this subject so customers can benefit from the advantages that being a homeowner implies.

Ownership and Credit Assessment

Being a homeowner will make it far easier for you to get approved for any loan type regardless of your credit score or history. This does not mean that you credit report will not be pulled. Only no-credit-check loans require no verification of your debt payment history. However, even if you have a low score, approval for regular loans is achievable as long as you own your property. Tenants, on the other hand will have more difficulties for getting approved with a low credit score.

Ownership and Income Assessment

The income requirement for approval vary from one loan type to another. Yet, almost all of them require sufficient income to afford a minimum average monthly payment. Based on that figure, the repayment program can be agreed with longer or shorter schedules that will imply lower or higher payments each. Yet, being an owner implies that the income requirements for approval will be less harsh and that your negotiating stance will be stronger when agreeing with the lender how the repayment will be.

Ownership and Loan Type

There is an important misconception about homeowner loans. It is believed by many that these loans are all secured loans which is not true. The requirement for available home equity is not a must because there are also unsecured owner loans which have better terms than unsecured tenant loans due to the less risk involved in the transaction. Therefore, collateral is not a requirement for the approval of this loan type despite what many online sites state.

What makes these loans different then? Basically, the fact that the lenders will take into account the you possess the title deed of one or more properties when settling your loan terms. This will imply better loan conditions for you like a lower monthly payment, lower interests, more flexible repayment schedules, forbearances, grace periods, no prepayment penalty fees, etc.

Why Is There A Lower Risk If Loans Are Not Necessarily Secured?

It is important to note that your assets guarantee your debt even if you do not use them as collateral for the loans and lines of credit you take. Lenders always have legal actions available to them in case you default on your debt. Though it is much easier and faster to recover their investment if there is a security guaranteeing repayment, the entire debtor's assets do act as a guarantee for unsecured debt. Therefore being a homeowner reduces the risk involved in the transaction for the lender because there is a property of significant value which can be sold to repay the debt in case of default even if they have to wait for a long legal process.

Sub-prime mortgages have been in the news rather more than usual in recent months, thanks to the crisis that had its roots in the United States. There, when the interest rate was low, many people took out mortgages that they would struggle to keep up the repayments on when mortgage rates began to rise. Well, mortgage rates did begin to rise, and the result was that of these mortgage holders began to default. Many financial packages that had been built up around these mortgages began to collapse, and the result was the credit crunch that has swept around the world.

The consequence for those in the sub-prime bracket in the UK is that they are finding it harder than ever to find a mortgage at a decent rate. In a similar way to that in which Egg had shed a number of its credit card holders because it has determined them to be a bad risk, mortgage lenders are picking and choosing to whom they lend (as they are perfectly entitled to do) and high-risk borrowers are top of the list to drop.

So, who falls into the sub-prime category of borrowers?

It includes people with poor credit records, or those with CCJs or who have been made bankrupt. Reasons for poor credit records have made the headlines, with some notoriously getting on the bad list for missing monthly mobile phone bill payments.

What about the self-employed, who might have difficulty in proving a high enough income to get a decent mortgage?

These fall into the category of non-status mortgages, which are mortgages offered by lenders to borrowers who have no proof of previous mortgage history, proof of income etc. The usual maximum loan to value is around 70% and a credit check is still carried out. However, non-status mortgage holders tend to fare better than sub-prime mortgage holders, and a clear distinction should be made.

Nevertheless, people wanting a non-status mortgage are advised to approach a mortgage advisor or mortgage broker who will be able to find them a deal where a High Street lender may not - and a refused mortgage application does your credit history no good at all.

When customers avail a loan, the rate of interest that they are expected to pay varies from time to time. For example, the rate that customers will have to pay while repaying their mortgage depends on the rate that is set by the central bank of a country. Therefore economic conditions can alter the rate of interest that one will have to pay.

However, in a fixed-rate mortgage, borrowers are expected to pay only a fixed rate as interest for a mortgage repayment. The interest rate of such mortgages does not change for a fixed period of time. This means that the customer is not expected to pay more if the interest rate in the country increases. Similarly, he or she should not expect lower interest rates even if the mortgage interest rate in the country falls. In fixed-rate mortgages, the interest rate on the mortgage is guaranteed to remain the same.

Most lenders offer fixed rates for one to ten years. It may be very useful for borrowers who needs to plan ahead and do not want interest hikes to affect their finances. While availing such a loan, one can be sure about the amount that one needs to repay each month. In the case of adjustable-rate mortgages, one needs to prepare for a repayment as per the changes in the interest rates that are applied by the government from time to time.

Lenders run a risk when they issue a fixed-rate mortgage. This is because they will not be able to capitalise on higher interest rates if the government hikes interest rates. Hence, fixed-rate mortgages carry higher interest rates. Similarly, interest on long duration fixed-rate mortgages will be higher than the interest on short-term fixed-rate mortgages. Some lenders will provide a mortgage that allows overpayments. Others will allow only a certain number of overpayments a year.