There are a lot of factors in play when a South Florida resident is looking for that prime piece of property to call home, but perhaps no factor is more important than the process of applying for a mortgage. Securing a mortgage for a home is probably one of the biggest financial decisions a person will ever make, so it is important to know the basics of this transaction.
First, there is the concept of collateral. When a person is applying for a mortgage what is happening, essentially, is that the soon-to-be homeowner needs a loan to cover the purchase price of the house they want to buy. The lender provides those funds in exchange for an interest in the property in question - the home is the collateral for the loan. As long as the homeowner makes the monthly mortgage payments as agreed, there is no problem. But, if delinquent payments become an issue, or if the homeowner just flat-out doesn't make the payments, the lender can proceed with a foreclosure action to recover the home and sell it to satisfy the debt.
Next, there is the all-important decision between fixed-rate and adjustable-rate mortgages. A fixed-rate mortgage has been the most common over the years. Securing this type of mortgage means that the interest rate on the money that is loaned to the homeowner will stay the same throughout the term of the mortgage. This type of mortgage is especially advantageous if interest rates are very low - as they have been the last several years. However, an adjustable-rate mortgage is also an option. With this type of mortgage the interest rate will fluctuate in accordance with an agreed upon index, so monthly payments may go up - or, hopefully, down - during the term of the loan.
Lastly, the potential homeowner and the lender need to agree on how long the mortgage agreement will last. The most common options are 15 and 30 year mortgages. Which one is better will depend on the mortgage applicant's financial situation at the time the application is processed - and how strong they think their financial situation will be for the long term.
Source: FindLaw, "Mortgage Basics," accessed on Aug. 11, 2014