is a mortgage?
mortgage is a loan obtained to purchase real estate. The "mortgage"
itself is a lien on the home or property that secures the promise to pay the debt.
All mortgages have two features in common: principal and interest.
is a loan to value(LTV)? How does it determine the size of the loan?
loan to value ratio is the amount of money you borrow compared with the price
or appraised value of the home you are purchasing. Each loan has a specific LTV
limit. For example: With a 95% LTV loan on a home priced at $50,000, you could
borrow u to $47,500 (95% of $50,000), and would have to pay,$2,500 as a down payment.
LTV ratio reflects the amount of equity borrowers have in their homes. The higher
the LTV the less cash homebuyers are required to payout of their own funds. So,
to protect lenders against potential loss in case of default, higher LTV loans
(80% or more) usually require mortgage insurance policy.
What types of loans are available and what are the advantages of each?
Rate Mortgages: Payments remain the same for the the life of the loan
cost remains unaffected by interest rate changes and inflation.
Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with
changes in interest rates; increases subject to limits
Mortgage- Offers very low rates for an Initial period of time (usually 5, 7, or
10 years); when time has elapsed, the balance is clue or refinanced (though not
Mortgage- Interest rate adjusts only once and remains the same for the life of
linked to a specific index or margin
offer lower initial interest rates
payments can be lower
allow borrower to qualify for a larger loan amount
do ARMs make sense?
ARM may make sense If you are confident that your income will increase steadily
over the years or if you anticipate a move in the near future and aren't concerned
about potential increases in interest rates.
What are the advantages of 15- and 30- year laon terms?
the first 23 years of the loan, more interest is paid off than principal, meaning
larger tax deductions.
inflation and costs of living increase, mortgage payments become a smaller part
of overall expenses.
is usually made at a lower interest rate.
is built faster because early payments pay more principal.
Can I pay off my loan ahead of schedule?
By sending in extra money each month or making an extra payment at the end of
the year, you can accelerate the process of paying off the loan. When you send
extra money, be sure to indicate that the excess payment is to be applied to the
principal. Most lenders allow loan prepayment, though you may have to pay a prepayment
penalty to do so. Ask your lender for details.
there special mortgages for first-time homebuyers?
Lenders now offer several affordable mortgage options which can help first-time
homebuyers overcome obstacles that made purchasing a home difficult in the past.
Lenders may now be able to help borrowers who don't have a lot of money saved
for the down payment and closing costs, have no or a poor credit history, have
quite a bit of long-term debt, or have experienced income irregularities.
large of a down payment do I need?
are mortgage options now available that only require a down payment of 5% or less
of the purchase price. But the larger the down payment, the less you have to borrow,
and the more equity you'll have. Mortgages with less than a 20% down payment generally
require a mortgage insurance policy to secure the loan. When considering the size
of your down payment, consider that you'll also need money for closing costs,
moving expenses, and - possibly -repairs and decorating.
What is included in a monthly mortgage payment?
monthly mortgage payment mainly pays off principal and interest. But most lenders
also include local real estate taxes, homeowner's insurance, and mortgage insurance
What factors affect mortgage payments?
amount of the down payment, the size of the mortgage loan, the interest rate,
the length of the repayment term and payment schedule will all affect the size
of your mortgage payment.
How does the interest rate factor in securing a mortgage loan?
lower interest rate allows you to borrow more money than a high rate with the
some monthly payment. Interest rates can fluctuate as you shop for a loan, so
ask-lenders if they offer a rate "lock-in"which guarantees a specific
interest rate for a certain period of time. Remember that a lender must disclose
the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a
mortgage loan by expressing it in terms of a yearly interest rate. It is generally
higher than the interest rate because it also includes the cost of points, mortgage
insurance, and other fees included in the loan.
What happens if interest rates decrease and I have a fixed rate loan?
interest rates drop significantly, you may want to investigate refinancing. Most
experts agree that if you plan to be in your house for at least 18 months and
you can get a rate 2% less than your current one, refinancing is smart. Refinancing
may, however, involve paying many of the same fees paid at the original closing,
plus origination and application fees.
What are discount points?
points allow you to lower your interest rate. They are essentially prepaid interest,
With each point equaling 1% of the total loan amount. Generally, for each point
paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a
percentage point. When shopping for loans, ask lenders for an interest rate with
0 points and then see how much the rate decreases With each point paid. Discount
points are smart if you plan to stay in a home for some time since they can lower
the monthly loan payment. Points are tax deductible when you purchase a home and
you may be able to negotiate for the seller to pay for some of them.
is an escrow account? Do I need one?
by your lender, an escrow account is a place to set aside a portion of your monthly
mortgage payment to cover annual charges for homeowner's insurance, mortgage insurance
(if applicable), and property taxes. Escrow accounts are a good idea because they
assure money will always be available for these payments. If you use an escrow
account to pay property tax or homeowner's insurance, make sure you are not penalized
for late payments since it is the lender's responsibility to make those payments.