Arkansas
Home Financing and
Mortgages
 Buying a home is
probably the biggest financial step that you will take. Because a house is
an expensive purchase most people take out a mortgage loan to finance at
least part of the cost of their home.
There are different
kinds of mortgage available, tailored to different needs. Two important
elements of the mortgage are the term (how long it will take to repay the
loan) and the interest rate, which determines how expensive the loan will
be. In working out how much you can borrow, the lender will take account of
a number of factors, including how much an appraiser says the property is
worth, how big a down payment you can make, how much you earn, and what
savings and other debts you have.
People often choose a
30 year loan term, because it minimizes their monthly payments and may help
them get a bigger house. Shorter terms are also common.
Interest may be
calculated in two basic ways. With a fixed interest loan the interest rate
remains the same for the duration of the loan or for an agreed period. Fixed
interest loans make good sense when interest rates generally are low.
Variable rate loans have an interest rate which can go up or down as rates
move in the marketplace.
People sometimes change
or refinance their mortgage before it is paid off, usually to get a lower
interest rate. As you pay off part of your loan and the value of your
property increases the gap (called “equity”) between what you owe and what
your home is worth grows and you then can borrow more money. The interest on
a mortgage is usually tax deductible, although you should confirm this with
your adviser.
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