Mortgage is a type of loan which is used to purchase a home and mortgage is offered by credit unions, banks, other financial institutions. When you try to purchase any house using mortgage, your lender or bank loaning you the funds —actually pays for the home outright. Then, over the length of your loan, you pay the lender back for those funds + interest, month after month.
When you buying a home using mortgage, you will make regular monthly payments until balance clear. Your payments can cover several costs, including Principal, Interest, Homeowners insurance, Taxes and Mortgage insurance
Adjustable rate comes with a set interest rate for a short period, after which the rate can increase. This means an increased monthly payment as well. Adjustable rate loans typically come with much lower interest rates, initially, than fixed-rate options, but they carry the added risk of future rate increases. ARMs can be a good choice if you know you won’t be in the home long, or if you are willing to refinance into a fixed rate loan before your low rate period expires. On the other hand fixed rate loans come with set consistent interest rates for the entirety of the loan term. It means you will always pay the same amount of interest each month until your home is fully paid off.
Pros of adjustable rate are: 1. Lower monthly payment, initially 2. Lower interest rates, initially 3. Good for short-term homeowners 4. Higher debt-to-income allowed. Cons of adjustable rate are: 1. Unpredictable payments after a certain point 2. Risk of an interest-rate increase later on 3.Risky for long-term homeowners. Pros of Fixed rate are: 1. Predictable monthly payments 2. No risk of an interest rate increase 3. Good for long-term homeowners 4. Easy to budget and plan for. Cons of Fixed rate are: 1. May be harder to afford the home you want 2. Higher interest rates, at least initially
Mortgage insurance is a type of insurance policy designed to protect mortgage lenders. If a borrower defaults on their mortgage loan, mortgage insurance steps in and pays off all or a portion of the outstanding balance. On Federal Housing Association (FHA) mortgage loans, this type of insurance, commonly referred to as MIP, is required for all borrowers