For most Americans, buying a home with a mortgage is their only choice. A mortgage is a huge responsibility that scares away many prospective home buyers. The idea of having a debt of tens of thousands of dollars, or even hundreds of thousands of dollars hanging over your head for the next 15 to 30 years is terrifying to most young, affluent couples who have done a good job of staying out of debt, managing their money and being responsible enough to actually be able to own their own home. But once you learn a bit more about what a mortgage is and the parts that make one up, it can help to demystify the whole mortgage process. Here are some helpful Buyers Tips for Purchasing Sarasota Real Estate.

In the simplest terms, a mortgage is essentially a long term loan that a prospective home buyer gets from a variety of sources. A mortgage can come from a bank, a mortgage broker, a lender online or even the seller of the property themselves. A mortgage can even be done privately through a rich relative, but, obviously, these transactions would be much simpler than the ones we’ll discuss here.

Every loan needs collateral, and a mortgage is no different. In most cases, the collateral is the house itself, as well as the land the house is sitting on. If you default on your mortgage, you could most likely lose the house and the land you just bought.

The time frame that a mortgage exists for can vary. There are two major lengths that are most commonly used: 15 years and 30 years. Both length mortgages have their advantages and disadvantages. In the case of the 15-year mortgage, you only have to pay it off for 15 years, so you’re saving a lot more money in the long run on interest. The bad part is your monthly payments would be much, much higher. On the other end, with a 30-year mortgage, your monthly payments would be much lower, but your interest rate would be higher and you might even end up paying more for interest over the life of the loan that the actual amount you borrowed.

If you choose to use escrow, and the vast majority of mortgages are set up that way, your payment that you make every month is used towards four different things: your property insurance, your real estate tax, your interest and the principal of the loan itself. Let’s take a closer look at these four parts.

Property Insurance – This helpful bit of insurance protects your house against things like fires, hurricanes, natural disasters and theft. Most property insurance, however, does not protect against mother-in-law visits.

Real Estate Tax – The amount that you owe on property tax is already part of your mortgage. Property tax is used by most cities on things like schools, police and fire departments and other municipal needs.

Interest – The big, bad monster of your mortgage. At the beginning of your mortgage, the vast majority of your payment goes here. As you pay your mortgage off over time, you’ll see that the principal will get smaller and smaller and more of your payment will go towards it and not interest. Of course, the amount of interest you pay will depend on the rate you have and if it is fixed or variable over time.

Principal – The amount your mortgage loan was for. This is what needs to be paid the most, but it never seems to get small enough quick enough. If you can handle the payments of a 15-year mortgage, you would be better off since much more of your monthly payment will go toward the principal than the interest. Once the principal is paid off, you would be done with your mortgage.

Most mortgages are set up so that you have a choice to either pay your real estate tax in a lump sum every month like it was the cable bill or have it put into your mortgage so you don’t have to worry about cutting another check. Make sure you have both options when you are negotiating your mortgage.

While a mortgage can seem intimidating at the beginning, the more you know about them, the better off you’ll be. The idea of being hundreds of thousands of dollars in debt with a 30-year cloud over your head can be too much for some people, but for those that are willing to take the responsibility of a mortgage, it can pay off big time, thanks to Buyers Tips for Purchasing Sarasota Real Estate.