There are two ways to buy a house. You can use cash from your bank account, or money borrowed from a mortgage lender.
Most home buyers choose to borrow.
When a person borrows money to buy a house, the loan is called a mortgage.
Mortgages have three components:
- The mortgage size, which is the amount borrowed
- The mortgage rate, which is the interest rate at which money is borrowed
- The mortgage term, which is the number of years over which the loan must be repaid
When you buy a house and use a mortgage, all three figures are up to you. You decide how much to borrow; what rate you want; and, how long you’ll have to pay it all back.
You also get to choose whether the interest rate for your mortgage stays the same for as long as you have the loan, or whether your rate can fluctuate with the economy,
Respectively, these loans are known as fixed-rate mortgages and adjustable-rate mortgages (ARM).
Whatever your choices, remember this: there are no mortgage loan options that are inherently bad, but there may be some which are inherently bad for you, based on your goals and household budget.
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A brief explainer video for the popular 100% USDA mortgage.