Most people want to own a home but cannot afford to purchase it as they do not have any money to do so. Mortgage is the term used by which one gets a loan to purchase the house. The loan can be got from a bank or a mortgage company or even a private lender. Most mortgage loans are taken from either banks that extend mortgage loans or from mortgage companies whose business is giving mortgage loans. Because there is a large sum of money involved and the period that it takes to return the loan amount there are some basics that one should be aware of before one takes out a mortgage.

The property which one wants to purchase will become the ‘collateral’ which means that it will remain on the name of the financing company till the loan is fully paid off. The amount that one wishes to borrow to purchase the property is the ‘loan amount’ which is also called the ‘principal’ or ‘principal amount’. The financing company will charge for giving the loan and this is called ‘interest’. Then there is the ‘installment’. This is the amount that one will have to pay every month to the lender. The installment has two portions one is the return of the ‘principal’ amount and the other is the payment of ‘interest’. The number of installments in which the loan will be paid off is called the ‘term’.

Most first time mortgages are taken for a term of 30 years however there can be a lesser term which could be for 10 or 15 or 20 or 25 years. There are two types of interest rates that one can take one is a fixed rate which means that the interest rate will not change for the term of the loan. The second is called ARM or adjustable rate mortgage in this the interest rate is not fixed for the term of the loan but is fixed for a certain period and is then reviewed after that. The review can be after a year or 3 or 5 or 7 years. The review period of the interest rate is decided mutually by both the borrower and the lender. Most people initially go for a fixed rate as they want to know how much they will have to pay each month so that they can work out their budget. Some people who expect to get a raise or their income to increase in the future may opt for an adjustable basics mortgage rate or ARM as they feel that they may actually end up paying less then if they had taken a fixed rate loan. Repayments for mortgage loans are mostly monthly but some people also go for fortnightly payments. So adjustable rate mortgages are those mortgage loans in which the interest rate is not fixed for the entire term of the loan but is reviewed periodically.

As an introduction to mortgage banking it implies that those banks that specialize only in financing mortgage loans which in essential means that the banks customers’ money is lent to people who want to take a mortgage and the interest charged on these loans is used to finance the operations of the bank and any profit that the mortgage bank makes. So working out how much is a property worth, how much money is the borrower looking for and how much is the mortgage bank ready to give and what is the term of the loan and what is the interest that the mortgage bank will charge for the loan can be termed as mortgage banking basics.

After one has taken out a mortgage and is repaying it one maybe approached by a mortgage company or a mortgage broker who may offer a refinance. To understand what refinancing is one must get mortgage refinancing basic information, which is that a second mortgage company is ready to extend a second loan to the borrower. For example if over the years the value of the property has increased or is the same the second mortgage company may offer a refinance. This is worked out as LTV which is ‘Loan to Value’. In simple terms it means that let us assume that one has taken a loan for $200,000 and has repaid $50,000 and the value of the property which is also called FMV or CMV which means ‘Fair Market Value’ or ‘Current Market Value’ is the same then the amount that would be offered for refinance would be $50,000. Of course it is not all that simple and some refinance companies may also offer to refinance the entire loan. However to secure a mortgage one must remember that the borrower or borrowers need to have a very good credit rating.