Applying for the first home mortgage might seem like an easy process because people buy and sell home s every day. However, buying a home is not that simple, and applying for a home mortgage can be a long process requiring a lot of patience and fortitude.

However, if you know what to expect up front the home mortgage process will be much easier and a lot less stressful. Let’s start with the basic parts of a mortgage. Understanding these three elements will help you determine your financial situations, because the combination of these three elements will determine your monthly payment. These three elements will also ask for if you use an online mortgage calculator.

Interest Rate

The interest rate is the amount of interest charged on a monthly mortgage payment. It is a percentage of the principle loan amount. Interest rates can be very different depending on the type and terms of a mortgage. Your home mortgage interest rate will affect how much money you have to pay back over the term of loan, so the lower the better.

Size of the Home Mortgage Loan:

How much will you borrow? The size of your loan will primarily depend on your budget, your credit, and how much of a down payment you can afford.

Fixed or Adjustable Rate Mortgage

A fixed rate home mortgage loan (FRM) means that the interest rate you get upon loan approval is the interest you maintain for the life of the loan. The life of the loan is refereed to as a mortgage term. A mortgage can range anywhere from a six months loan to 30 years. The 30-year fixed rate mortgage is the most common terms. If the current interest rates are low, an FRM will prove to be a good choice as you will assure of locking in at a low interest all throughout your loan term.

Variable or Adjustable Rate Mortgage (ARM) is a home loan with an interest that fluctuations with market interest rates. Adjustable rate mortgage is given initially cheaper than FRM since the ARM involve greater risk. Adjustable rate mortgage is a great option if the current interest rates are high and you foresee them to lower in the coming years. If you know that you will stay in your home for a relatively short period, you can get a good deal with an ARM.

Understanding the basic parts of a home mortgage will help you plan financially for the home buying process. Build on the knowledge by learning about the various types of mortgage, how to interpret your credit score and other mortgage related topics.