A survey taken in September of 2016 revealed that nearly 60% of homeowners don’t think they understand the terms and details of their mortgage loan very well and wish they knew it better. In that same year, the average sale price for a home in America was $186,000, which means that most home buyers are going to be looking for a mortgage company, taking personal loans, and trying to understand the issues with mortgage rates. Whether you’ve yet bought or not, here’s a little information to help you understand the terminology and structure of mortgage loans better.
Types of Mortgage Loans
There are basically two types: the fixed rate mortgage and the adjustable rate mortgage. These terms are talking about the interest rates that your lender will charge you as you repay the money you were loaned. With a fixed rate mortgage, the rate of interest never changes. This means your monthly payment will always be the same. An adjustable rate mortgage can change and will go up and down with the market.
Time For Paying Off a Mortgage Loan
The majority of mortgages are scheduled to be paid over the course of 30 years. Some are only 15 years, but these are rarer as the monthly payments are far higher. If a homeowner decided to sell before the time is up, which most homeowner’s do, they pay off the mortgage with the money they make from the sale of their home.
What is Involved in a Mortgage Payment?
There will be four parts to each month’s payment: the principal, the interest, the taxes, and the insurance. The principle is the base money that you’re paying back to your lender, month by month. The interest is what the lender is charging you for using their money. The taxes and insurance are something that most homeowners will pay rolled into their mortgage premium. Some choose to pay taxes and insurance personally, but most send them to the lender who will pay those when they come due.
Almost all lenders require a down payment of your own money as you buy. If you can’t afford to pay at least 20% of the house price up front, the lender may require you to buy mortgage insurance to cover their loss if you stop paying. It’s also important to know that the interest on your loan is usually paid at the beginning so that initially your payments are almost all interest and very little is done to reduce the principle. Towards the end of your mortgage loan, you’ll be largely paying off the principle. BEcause of interest, the cost of the mortgage over the course of 30 years is often double the actual price of the home.
Now you know more about what a mortgage is. While it can be complicated, and it certainly is costly, it can be worth it for the right home. The key is finding the right mortgage company to get you the best deal possible on the home of your dreams.