Financial Advice on Mortgages
A mortgage is a debt obligation that allows a homeowner to borrow money for a home and pay the loan off over time. In most mortgages, the home serves as collateral to ensure the loan is repaid to the lender.
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Principal
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The principal is the amount of the loan used to purchase a home. Buying a home without making a down payment increases the long-term cost of a home. If you make a down payment, you decrease the amount of the loan and you pay less interest on the loan.
Interest Rate
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The interest rate is the percentage of the loan the mortgage lender charges for borrowing the money. Larger interest rates increase the overall cost of buying a home. To keep interest rates low, negotiate with more than one lender to keep the interest rate as low as possible.
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Term
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The term is the length of time you pay on the mortgage. The most common term is a 30-year mortgage, which requires monthly payments for 30 years to pay off the home loan. Similarly, a 15-year mortgage requires monthly payments for 15 years.
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