What Are the Basics of Mortgages?


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In the most basic sense, borrowers use mortgages to purchase homes, explains Investopedia. Complex issues surround the topic of mortgages, including the legal ramifications and the amount of documentation required to approve mortgages.

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When most people think of mortgages, the first thing that comes to mind is fixed-rate mortgages, states Investopedia. Most borrowers seek fixed-rate mortgages to finance the purchase of a home. At its core, a fixed-rate mortgage is one where the interest rate stays the same over the life of the loan. A fixed interest rate protects a borrower from sudden increases in interest rates that can cause a large rise in monthly mortgage payments.

Other basic mortgage terminology includes adjustable-rate mortgages, annual percentage rates and appraisals, explains Mortgage Calculator. An adjustable-rate mortgage, known as an ARM, is a loan where the interest rate remains fixed only for a set period of time. After the initial fixed-interest rate period expires, the interest rate adjusts based on several market conditions. The annual percentage rate is the amount of interest a borrower pays back to a lender. Professional appraisers conduct appraisals to determine the estimated value of a home and property that secures a mortgage. Other basic terms include closing costs, down payment and good faith estimate.

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