March 1, 2024

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By Rachel Layne
/ CBS News
For most Americans, buying a home is the biggest purchase they’ll ever make. 
If you’re looking to become a homeowner and can’t pay cash, you’ll need to know the ins and outs of mortgages. If you already have a mortgage, you may be considering refinancing.
Mortgages consist of two main parts: The principal, or the amount you’re borrowing, and the interest, or the amount lenders charge you for lending the money, calculated as a percentage of the principal, or mortgage rate.
Whether you currently own a home or are looking to purchase one soon, interest rates are key. Explore your options and make sure you’re getting the best rate possible. 
There are two basic kinds of interest rates that govern how most mortgage payments are calculated:
Your total monthly mortgage payment can also include escrow, local property taxes, private mortgage insurance, and other service fees.  
There are many kinds of mortgages available and a lot of jargon that comes with them. Here are six:
Most U.S. borrowers take out a 30-year fixed-rate mortgage, according to Freddie Mac.
Generally, a 30-year mortgage tends to have lower monthly payments than shorter loans. That makes payments more affordable month-to-month. But that also means you pay a bigger total because there are more interest payments. 
Fixed-rate mortgages are typically offered over 10, 15,  20, and 30 years. Refinancings usually have shorter terms, such as 10- or 15-year loans.
A lot depends on your situation and your goal for the property. Take stock of your overall financial picture and long-term goals to find a mortgage you can afford. Compare ARMs and FRMs to determine what’s best for you.
Be sure to include all the monthly bills, your income, and savings for a down payment. In general, you shouldn’t spend more than 28% of your monthly income on your mortgage payment. You can also judge offers by using this estimated payment calculator.
Shop around. If you think you qualify, try a government-backed loan. Pay attention to your total cost. That includes all fees, closing costs, escrow, down payment, and insurance. Some experts also advise setting aside three months’ worth of payments in case of emergency, like a job loss.
Fixed mortgages provide a stable interest rate for the life of the loan. That means if interest rates rise, you’ll keep paying the same rate. If interest rates fall, however, you may want to refinance a fixed-rate mortgage. Remember, refinancing also involves fees, closing costs, and other expenses. Compare your overall costs, not just the monthly payment.
Many factors make up your monthly mortgage payment. They include general economic conditions (like rising interest rates), your credit rating, length of your loan, income, down payment, savings and other accounts, debts, and the kind of loan you seek.
Lenders will ask you to fill out a uniform loan application in addition to financial documentation including proof of income, tax and W-2 records, bank and investment statements, and other assets. 
Have more questions? An online financial adviser can help you today.
First published on August 18, 2022 / 3:55 PM
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