House loans are procured from banks and called as mortgage or the note. The bank that offers the money is called as the lender. While the sum of money that is paid every month to the bank is called as the mortgage payment. This loan is associated with a rate of interest called as the mortgage rate. If the mortgagee does not make the mortgage payments, the bank reserves the right to repossess the house. Further, the bank sells the house to acquire the money that the bank had loaned to the person which he did not repay.
The loan is repaid in a specific number of years called as the term. In the United States, this term is either of 15 years or of 30 years. The 15-year mortgage enables to repay the loan in half the time and saves a bundle on interest. A 30-year mortgage keeps the cash liquid and helps the person purchase a higher priced house. There are lower monthly payments and this is easier to qualify.
Those who desire the maximum flexibility should opt for a 30-year house loan. The interest to be paid can be saved and the loan can be repaid early by paying an extra amount per month. The benefit of this loan is that the person can decide how much extra to pay and how much money he wishes to save. However, in case of a 15-year loan, there are huge payments every month, whether it is liked or not. Those who can afford these payments should take this loan and can feel comfortable because the loan is repaid in half the time and the interest payment is saved.
The loan is repaid by making a payment each month. As the bank does not send a bill, it is the persons responsibility that every month the payment is made. Nowadays, most of the banks permit to make the payment online. It is strongly advised to set up an automatic monthly draw from the bank account. Some part of this payment goes towards the principal and some part to the interest. This interest is the profit of the bank for lending the person a sum of money. However, only one check is written for payment of these two issues. This payment amount remains the same for the total duration of the loan. It must be remembered that the interest charged is compound interest.
There are three major types of loans Conventional, FHA, VA.
A conventional loan is simply a normal and regular loan. The government of the United States offers the FHA loan program so that purchasing a house is made easier. In case the person defaults to make the monthly payments, the government guarantees part of the loan. As this loan is partially guaranteed, it is easier to get it. However, if the person defaults to make the payments, the bank takes possession of the house. VA loan is a good alternative for veterans. Similar to FHA loans, the VA does not lend money and these loans can be combined with second mortgages.