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Mortgage: Worth the Stress?

11 · 06 · 19

While Mortgage is stressful and very hard to understand, there’s no reason that it should ever make you cry! There is a world of hope out there for anyone who is struggling with the idea of mortgage payments. While they are essential for buying a home, they aren’t as difficult as a lot of people make them out. 

In fact, let’s break down the idea together. Here are the top five things to know about Mortgage to help anyone sleep better at night.

What is a Mortgage?

A mortgage is a loan used to finance the purchase of a house. When you buy a home in most cases you will be required to use a down payment, typically between 3.5%-20% of the purchase price you will pay in cash. The remaining amount is borrowed from a mortgage lender, this loan is called a mortgage.

For example, you make an offer of $200,000 house and it is accepted. You have 10% ($20,000) saved up, this will be your down payment. The remaining 90% ($180,000) you will need a loan from a mortgage lender.

What’s Included in Your Mortgage Payment

There are many things to know when it comes to Mortgage Payment, let’s break it down together!

Principal Payment 

The principal balance is the amount of money you borrowed. Each month a portion of your payment will go towards the principal balance. For the first few years, only a small amount of your mortgage payment goes to the principal, as the loan goes on a larger percentage goes to the principal balance.

Interest Payment 

Interest is what a lender charges for lending you money. The majority of your monthly loan payment in the first 10-15 years will go towards interest. 

Property Taxes

Every state in the U.S. has property taxes that will be due each year. The county will assess the value of your home and charge you based on the county tax rate. 

Property taxes are usually included in your monthly payment and placed in an escrow account. The lender will make the tax payment when it becomes due. 

Mortgage Insurance 

Private mortgage insurance (PMI) is insurance on the loan itself. In the event, a borrower defaults on the loan the insurance company will reimburse the mortgage lender. 

PMI is required on all conventional loans with a loan-to-value ratio of over 80%. Meaning unless you put down at least 20% you will be required to carry mortgage insurance. 

FHA loans require mortgage insurance regardless of how much money you put down. FHA MIP rates vary based on the amount of your downpayment. VA loans do not require the borrower to carry mortgage insurance at all. 

Closing Costs 

Closing costs are fees charged by the mortgage company for funding and processing the loan. You will be charged for items such as your credit report ($20-$35), loan-application fee ($200-$400) and a loan origination fee (2%-5% of the sales price). 

Closing costs vary from lender to lender so it’s a good idea to get a loan estimate from at least 3 lenders. This will ensure you’re getting a competitive interest rate and closing costs.

Mortgage Term

The most common loan term is a 30-year fixed-rate mortgage. A fixed-rate loan is where you lock in your interest rate for the entire term. 15-year fixed-rate mortgages are also a popular option for those wanting a lower interest rate and to be able to pay off their loan in half the time. 

An adjustable-rate mortgage (ARM) is a loan that has a low-interest rate for the first few years, then it increases after the initial period is up. 

The most common is a 5/1 ARM, where the first 5 years of the loan you have a low-interest rate than the rate increases every year. This is a good option for homebuyers than does not plan on staying in the home for at least 5 years.

In other words, no mortgage is not worth the stress. It can be tricky and confusing but there’s no reason that everyone can’t understand it. Thanks for reading and thanks so much to The Lenders Network for the assistance of this article.

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