A mortgage is a loan that provides the funds you need to purchase a home. This type of financing typically comes with a fixed interest rate and a set term, such as 30 years or less.
There are several things that you should know about a mortgage before getting started on the application process. These include how the lender determines your mortgage rate, the different types of loans available and how to shop for the best rates.
The Mortgage Payment Explained
A loan payment on a mortgage consists of a portion of the principal, interest, property taxes and homeowners insurance. This amount is paid monthly, with the money going to your lender for these bills.
When you apply for a mortgage, lenders use your credit report to assess your eligibility. This includes checking your credit score and debt-to-income ratio, or DTI. The better your credit score and DTI, the lower the mortgage interest rate you’ll qualify for.
Your mortgage rate is the percentage of your existing mortgage balance you pay to a lender in exchange for a new loan. Your lender calculates your mortgage rate using personal data and market factors, including the current rate of interest and real estate economy conditions.
Choosing Your Mortgage Terms
The most common mortgage is a 30-year fixed-rate loan, but longer terms can have lower payments. The rate is also influenced by your credit, your income and the type of property you’re buying.
Whether you’re looking for a 30-year mortgage or a 15-year loan, comparing your options is important to finding the right fit for you. You can do this by comparing rates with Bankrate’s mortgage rate tables and by reviewing your loan details with our mortgage calculator.
Calculate Your Mortgage Payment
The mortgage payment formula is complex and can be confusing, but it’s important to understand how it works. This calculator will help you determine how much you’ll be paying each month on your mortgage and the estimated date when you’ll have paid it off entirely.
Enter your total loan amount, the interest rate and the loan term. The calculator will auto-populate your payment breakdown on the right side of the screen. You can toggle between a monthly and annual view to see a more detailed analysis of your mortgage repayment plan.
Mortgage Types
There are many types of mortgages, but these are the most common:
Conforming loans: These are federally-regulated loans that can be used to buy or build a primary residence. These mortgages have a minimum credit score requirement and a fixed interest rate, which can be lower than a non-conforming loan.
Government-backed loans: These are federally-insured mortgages that are offered by Fannie Mae and Freddie Mac, as well as other government agencies. These mortgages have lower interest rates than conventional loans but come with extra requirements and restrictions.
Jumbo loans: These are mortgages that exceed the conforming limits for traditional mortgages. They’re often sold by specialized lenders or brokers.
Getting your mortgage is an important step in your home-buying journey. It’s a significant investment, so it’s important to find the best lender to suit your needs. A good lender will work with you throughout the process to make sure your loan is the right one for you. They’ll also answer your questions and guide you through the entire process.