If you are planning to buy a home you are definitely going to need mortgage. Understanding mortgage can be quite complicated. In simple words, mortgage is the money that you lend to buy your home. You borrow the money and you pay it back to the lender with interest over a certain period of time.

This money is secured against your home. If somehow you cannot pay back this money within the required time period your lender will get back its money by selling your home.

The amount that you can borrow depends upon your income, your expenses and the fact that whether you are alone or with a partner. That’s why lenders choose their borrowers carefully. They examine whether the borrower is capable of paying back the back now and throughout the mortgage terms. Nowadays lenders usually formulate an affordability assessment to examine how much they can lend you.

Once you decide to buy the home the next decision you must make is where to obtain the mortgage, and the type of mortgage best suited for your situation.

 Fixed Rate Mortgage

This type of mortgage offers constant monthly payment and terms for this mortgage usually run for 30 years. The monthly installment for this type of mortgage remains the same regardless of any external event or change in key rates. In times of low interest rates, these mortgages are almost ubiquitous, as the payment will be very low, and consumers are eager to lock in this low rate.

Adjustable Rate Mortgage

The other most common type of mortgage is adjustable rate mortgage commonly known as ARM. With an ARM, the interest rate and the corresponding monthly payment change in sync with changes in the overall market interest rates. ARMs usually begin with a fixed-rate period, where the rate offered is below the rate offered on traditional fixed-rate mortgages. This low rate, often called a teaser rate can attract many borrowers looking short term for the lowest monthly payment.

If the interest rates rise dramatically, the borrower could be left with payments double (or more) their original payments. This sharp increase is difficult to budget for, and has lead to many foreclosures in the recent years.

Interest Only

Interest only mortgages, when used for residential lending, are typically bi-products of adjustable rate mortgages. This type of mortgage holds more or less the same rules as for ARM. This loan is usually suitable for people in commercial settings and high income individuals with significant variations in their monthly incomes


Subprime loans are typically issued to borrowers who have recent or ongoing credit issues. Using the low credit score of the borrower as an indication of risk to the lender, the rates will be higher on subprime mortgages. Therefore, consumers looking into subprime loans for real estate purchases should be even more prudent as the payments and terms could be drastically different.

Just as the variety of mortgage options has increased overtime, as has the variety of sources for the mortgages. It is no longer just the neighborhood bank who supplies mortgage loans. Now there are many options that you can avail to get the mortgage.

You can search for your options by asking your friends or by visiting online comparison websites. If you want to speak to an individual agent you can contact Avon Financial today. Our experts and specialists are available to listen and solve your problems.

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