Understanding the Basics of Mortgages

June 19, 2023

Mortgages are a common type of loan that allows individuals to purchase homes and can be a great way to invest in your future.

Unfortunately, the world of home mortgages can be complicated, with a lot of confusing terminology and technical details to keep track of. If you’re planning to apply for a mortgage, it’s important to have a good understanding of the basics, including the different types of mortgages, how interest rates work, and what factors determine your eligibility.

We take pride in helping our customers understand the ins and outs of mortgages so they can make informed decisions that are right for them, their families, and their individual situations. Here are some key points to keep in mind when it comes to mortgages:

Types of Mortgages

There are two main types of mortgages: fixed-rate and adjustable-rate. With a fixed-rate mortgage, your interest rate stays the same for the entire term of the loan. This can be a good option if you want predictable payments and want to lock in a fixed interest rate. With an adjustable-rate mortgage, your interest rate can fluctuate over time based on market conditions. This can be a good option if you think you’ll only have that loan for a few years, or if you think interest rates might go down in the future, but it can also be risky if rates go up and your monthly payment increases, particularly if it increases past your point of comfortability.

Interest Rates

Interest rates are a key factor in determining the cost of your mortgage. The interest rate is the percentage of the loan amount that you’ll pay in interest each year. When interest rates are low, it can be a good time to take out a mortgage because you’ll pay less in interest over the life of the loan. We know interest rates are scary right now, especially when compared to what they were a couple of years ago, but it should be noted that, historically, they’re still rather low when compared to the 10%+ interest rates we saw in the 1990s. However, keep in mind that the interest rate is just one factor to consider when deciding whether a mortgage is affordable for you. You’ll also need to factor in the loan amount, the length of the loan, and any additional fees or costs.


To qualify for a mortgage, you’ll need to meet certain eligibility criteria. This includes having a certain credit score, a steady income, and a low debt-to-income ratio. Your credit score is a number that reflects how reliable you are at paying back debt, and a higher score can help you get a lower interest rate. Your debt-to-income ratio is the amount of debt you have compared to your income, and typically we want this ratio to be below 43%.

Closing Costs

When you obtain a mortgage, you’ll also need to pay closing costs. These are fees associated with the homebuying process, such as appraisal fees, title fees, and legal fees. Closing costs can vary depending on multiple factors including the location of the home and seller contributions, but they typically range from 2-5% of the loan amount. We strive to keep our closing costs as low as possible to make the homebuying process more affordable for our customers.

Purchasing a home can be a great way to invest in your future, but it’s important to understand the basics before taking out a loan. By knowing the different types of mortgages, how interest rates work, and what factors determine your eligibility, you can make an informed decision that’s right for you. Our team at Newton Federal is here to help you navigate the world of mortgages and find a loan that meets your needs.