If you're going to buy a home, odds are you're going to need a home loan. The bottom line is that buying a home is the most expensive investment most people will ever make, so if you have the cash on hand to make such a purchase, you probably have some sort of hired help reading this site for you right now and you probably won't find much useful information. For the rest of us, however, we need a home loan, or a mortgage. The recent financial crisis has left us all a little weary of banks and lending and has probably left a lot of numbers spinning around in most people's heads that don't really mean anything, so we're going to start from the beginning and give a very simple overview of how the mortgage process works. Please be aware that we do have readers in both the UK and the US, so rules and available packages may be slightly different, but having made my home in both places, I'll try to provide a common ground for understanding here so we can all get a bit further ahead with our mortgage.

When a lender provides a loan for purchasing a new home, this loan is called a mortgage, and it is a secured loan using your brand new home as collateral should you fail to make your payments. How much your payments are, and how much money the bank makes from your loan is all going to be due to your choice of loan package, of which there are many. There are a few basic types of loans, and the main differences in each will be interest rate and time for repayment. If we're talking about interest rate, we're breaking loans down into two main catagoies: fixed and ARM. ARM, or adjustable rate mortgages, will start at one interest rate, remain steady for a period of time, and then change periodically. Just how they change is another manner entirely and will be specific both to the type of loan you have and what rates the interest on the loan is tied to. That requires a bit further explanation, but if you're interested, you'd be much better off talking to your banker or lender who will be able to inform you on the specific policies and packages for your lending institution. The second type, a fixed rate mortgage, is just what it sounds like. Generally, the interest rates for a fixed rate mortgage will be higher than the initial rates for a ARM, but interest rates for a fixed rate mortgage will never change, so if you're home costs a certain monthly amount when you buy it, with the exception of changes in taxes and insurance prices, your payments will be the same at the end period of the loan.

This brings us to the second part of the mortgage: the length. There are many different options here for mortgage repayment, and all have different perks and drawbacks. A shorter loan period will have higher payments because you'll have less time to pay the loan back, but your interest rate will be much lower, so you'll have to pay less money overall. Longer mortgage periods require lower payments, but in the end you'll be paying much more in interest. In the US, the most common mortgage terms are for thirty or fifteen years, and some at five, but you will almost never find a 2 year fixed rate mortgage. The 2 year fixed rate mortgage is much more common in the UK where rules are slightly different concerning lending. These loans usually won't be for the full value of a home and are mostly for refinancing or for people who make a very large down payment, but a 2 year fixed rate mortgage offers an extremely low interest rate, meaning that if you have a 2 year fixed rate mortgage, you'll be likely to only pay the lender a very small percentage more than the actual amount you borrowed. You will not find a 2 year fixed rate mortgage that covers the entire value of a home, so it isn't really an option for most to buy a new home who don't have a lot of cash on hand, but if you already have a home with a lot of equity in it and you're looking to refinance, a 2 year fixed rate mortgage might be the loan for you.

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