Mortgages come in lots of shapes and sizes. But most home buyers use the same general loan type: a 30-year, fixed-rate mortgage (FRM).
Let’s break down what that means:
You have 30 years to pay back what you borrow. Your loan amount will be broken down into 360 monthly payments (12 monthly mortgage payments per year x 30 years)
Your loan has a fixed interest rate. This means the total interest cost is predetermined, so you know from the outset exactly how much interest you’ll pay over the life of the loan, and your lender can never increase your rate. Your monthly payments are always the same. With a fixed-rate loan, the monthly payments never change. For instance, if you pay $1,000 per month in year 1 of your mortgage, you’ll pay $1,000 per month in year 30
In addition, most home loans are “fully amortized.” Amortization just means your payments are scheduled so that at the end of the loan term, your house will be fully paid off.
There are other common mortgage options, too, like 15-year mortgages and adjustable-rate mortgages. But most home buyers prefer the longer-term 30-year fixed-rate loan for its predictability and affordable payments.
If you’re shopping for mortgages as a first-time home buyer, this is the first loan type you should look at. Source
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