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Mortgage Basics
A mortgage is a loan used to buy real estate. The mortgage is actually a lien—a legal claim—on the home or property that secures the promise to repay the debt. Mortgages have two components: principal and interest. You can get a mortgage from a bank, a credit union, a mortgage company, or sometimes even a seller (or other private party) to buy or refinance a home

Before you need a mortgage, it's smart to understand enough about them to let you pick the bets rates and type of mortgage. Knowing exactly how much you will be spending on your mortgage each month will help you separate the amount you qualify for from the amount you can realistically afford.

You don't need to know about every mortgage product in the industry. Get an overview of the basics, then do some research at the library, on the Internet, or ask questions of experts—your real estate agent, loan officer, or mortgage broker. You may want to meet with a local housing counselor or take advantage of the expertise of a good buyer's real estate agent. Here is some information to start with.

Mortgage Categories
There are two categories of mortgages that nearly all lenders can offer: government-backed mortgages and conventional mortgages. Government-backed mortgages are insured by the Federal Housing Administration (FHA) under the Department of Housing and Urban Development. The Department of Veterans Affairs guarantees mortgages for eligible veterans or their spouses. Government-backed loans are for borrowers who need lower down payments or have lower incomes. These are geared toward first-time home buyers and can be very useful.

Conventional mortgages are either privately insured through private mortgage insurance companies or not insured at all. They are ideal for buyers with larger down payments. If you have a limited income or limited down payment, you still may qualify for a conventional mortgage. Be sure to ask when you are meeting with lenders.

What's in a Mortgage?
Nearly all mortgage loans have monthly payments that are due at the beginning of every month. Some loans have bi-weekly options. Included in each payment are principal and interest. The amount borrowed is the principal. The interest is an amount calculated using the rate (percentage) that you must pay for the privilege of borrowing. Your mortgage payment is divided into paying off your principal and your interest. This process is called amortization. In the first years of your mortgage, almost all the money will go to interest, allowing you a bigger income tax break.

How Long a Loan?
Most loans are amortized over 30 years, but there are 5-, 10-, 15-, 20-, and 25-year terms as well. The longer the term, the lower the payment; but the longer the term, the more interest you will pay.

Refinance your mortgage.
Homeowners can consolidate their short-term debts by refinancing their homes. A lower mortgage rate and a rising value of your house means you can take out cash when you refinance and pay off your bills. The lower mortgage rate also lowers your monthly payments substantially. Refinancing does spread the payment of the short-term debt over a longer period of time, but with a lower rate, it may well be worth it.

The problem with consolidating debt into one loan? You may feel free to start spending more on credit cards. If you are using your home as collateral, be clear on how you are going to change your spending habits. The only way to stay out of debt is to control it.