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Get to know your mortgage before you buy

Understanding a mortgage is as important as the mortgage you end up getting. A mortgage is simply a debt instrument, but there are various kinds. Mortgages are loans used for properties, and they must be paid back according to the terms of the mortgage's preset agreement.

It is typical to see mortgages set for 15, 20 or 30 years. Depending on when you get a mortgage, the interest rate may be fixed or variable. Additionally, it's possible to get a mortgage with or without money down as a deposit.

What is a fixed-rate mortgage?

A fixed-rate mortgage has one interest rate for the life of the loan. For example, if you lock in the loan at 5 percent, then that will always be the rate you have. It's normal for these loans to be on 15- or 30-year terms. The good news about these mortgages is that you can usually refinance for a lower rate but won't have to worry about higher interest rates in the future.

What are variable-rate mortgages?

Variable-rate mortgages, also known as adjustable-rate mortgages, have initial rates well below the current market rates. Over time, they increase. Initially, the loan may seem like a great deal, but the potential for interest rates to rise substantially makes them a bad choice.

No matter what kind of mortgage you choose, you need to understand how it will affect your payments and what you can afford. Higher interest rates may reduce what you can afford to buy, while lower rates give you an opportunity to look at more expensive homes.

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