Mortgage is a loan to finance the purchase of a home. It is the largest debt you will ever take on and typically it may take 15 to 30 years of repayment. Your home is the collateral for the loan, meaning that if you default the mortgage repayment, lender has the right to execute a foreclosure on the home. The mortgage agreement you have signed is also a legal contract between you and the lender that you promise to pay the debt, with interest and other costs; else the lender will have a right to take back the property and sell it to cover the debt.

Different Types of Mortgages

There are several types of mortgages. The two common types are fixed-rate mortgage and adjustable-rate mortgage, each has its pros and cons. The fixed-rate mortgage enables you to lock the interest rate at the time of signing up the mortgage. The rate will not change throughout the life of the loan. Whereas, the adjustable-rate mortgage's interest rates will fluctuate based on the market rate. The fixed-rate mortgage is good if the market foresees the increase of interest rate and you are able to lock at the lowest interest rate at this moment. You don't need to worry about the increase of interest rate in the future that may cause the increase of the monthly payment. If the market has close to a constant rate and you want to take advantage of low interest rate that may happen throughout the life of loan repayment, then you may choose the adjustable-rate mortgage.

Mortgage Repayment

Generally, a mortgage allows you to make payment in installments over a period of time such as 15, 20, or 30 years, known as repayment term. You choose the repayment period that is comfortable based on your affordable monthly repayment.

Factors that affect a mortgage application

Factor #1: Credit Score

You may search for the best mortgage from the market, but there are other factors that will determine your advantage to get the best mortgage from lenders. If you have a good credit score that shows you are a low risk borrower who will make the debt repayment on time, you have a good chance to secure a mortgage at lower rate than others who have bad credit score.

Factor #2: Down payment

Generally, if you pay less than 20% as the down payment when you purchase your home, you will be considered by lenders as a higher risk borrower than those who pay larger down payments. Therefore, lender will offset the risk by higher interest rate; or an escrow account will be set up to collect additional expenses, which are rolled into your monthly mortgage payment.

Research your Mortgage

Even though there are many mortgage offers you can choose from, it is important for you do as much research as possible before deciding the best mortgage. Moreover, mortgage is the largest legally-binding financial obligation you will take on. Therefore, you have to carefully consider not only the repayment term, but also the type of mortgage that will work the best for you.