Buying a home is an exciting, potentially terrifying time. If you are lucky enough to be able to afford a house outright: congratulations. For pretty much everyone else, you’re going to need a mortgage. We’re here to help you understand what exactly a mortgage is, how it works, and some pitfalls to avoid when taking one out.


In the simplest terms, a mortgage is a loan. It’s a specific loan from a bank or other financial institution meant to be used to finance a home. The major difference between a mortgage and other types of loans is that the bank still holds the title on your home until you pay it off. If you don’t pay back the loan on time, they can kick you out and take it back.

Mortgages will usually consist of a down payment of around 20% of the total cost of the house. The down payment is subtracted from the total of the home and mortgage is made for the remainder of the price, plus whatever interest rate is decided upon. You’ll probably also hear the term amortization period, which just means how long you have to pay off the mortgage.

Interest Rates

If you remember the housing crisis of 2008, it was caused by interest rates. There are two kinds of interest rates: Fixed and Variable/Floating. A fixed rate is typically going to be initially higher than a variable rate, but it will be locked into place for a specific term regardless of market changes. A variable rate will often be lower than a fixed rate initially but can change dramatically.

That’s exactly what happened. People were offered ridiculously low variable rates, millions jumped on the opportunity, the rates later ballooned and people couldn’t pay. It was a mess. Fixed interest rates are going to be your safer option.

How to Find the Best Mortgage

Getting a mortgage, much like any other loan, is not as simple as going into a bank and just asking for one. You have to be approved for it after an evaluation. However, don’t let that fact sucker you into taking the first lender that accepts you. Be sure to shop around and make sure you are getting the best terms you can. Amortization periods are usually somewhere around 40 years, that’s a long time to be in a bad deal.

Prepare your finances before you start looking. If your credit isn’t so hot, try to rehabilitate it before you start applying. Not only will this improve your chances of qualifying, it can also help improve the terms of the mortgage.

Once you’re in the process of getting the loan, try not to make any drastic financial changes. This most specifically applies to switching jobs. It can change the terms or even your eligibility. It’s best to wait until the mortgage deal has been closed.

This same principle makes co-signing a loan or making a major purchase a bad idea as well. Anything that will have a noticeable effect on your credit is ill-advised.

Getting a mortgage is a big decision and should not be taken lightly. Lending institutions are looking for safe bets. Anything that spooks them could cost you the loan. It’s best to wait until you have at least two months of financial stability before having your finances evaluated. Believe it or not, that means no major changes, negative or positive.

Home ownership is not easy for everyone, but we hope this information will help get you on the right track. Best of luck in your search!

Legal Disclaimer: This is for informational purposes only and should not be considered legal advice.