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Mortgage: The Basics of Mortgages

By working with a mortgage specialist, you can discuss your situation and best determine which mortgage is right for you. Once you decide to move forward with the home buying process, I can provide a list of specialists for you to choose from. You can choose one of these proven professionals or choose someone you have had success with before, it is up to you.

The following is a short description of some of the various types of mortgages.

Most home mortgages are a primary mortgage loan only and some also have a secondary mortgage. These are called First and Second Mortgages. These terms relate to the priority on the title for a home in the event of default. If the sales price of the home is above the upper loan limit, a secondary mortgage can be taken out for the remainder of the money needed.

The first mortgage or the principle loan is structured to pay a combination of principal and interest each month. In most cases, yearly real estate taxes and hazard insurance premiums are divided by 12 and added to the required payment also.

The principle or balance is the amount that you owe and pay monthly reducing this balance each month. So, over time the principle is reduced until there is a zero balance. This can be structured to be paid off typically over a 30-year term.There are also 15 year terms and now some other year terms available. However, different terms and accelerated payments can reduce the overall length of a mortgage payback.

The interest is the remaining portion of your mortgage payment. The interest is based upon the yearly interest rate which is then applied to the outstanding balance. The combination of principle and interest are structured to keep a fairly level monthly payment. So, over time, your payments on your principle increase and payment toward interest decreases.

Home loans come in a variety of terms like 10, 15, or 30 years or more. The shorter the loan period, the larger your monthly payment will be … and the greater the amount paid toward paying down the principal each month.

Mortgages are also available as ARMs or adjustable rate mortgages. These start at a lower interest rate for a set period of time and then adjust, usually upward in interest rate, for a set period of time and then lock-in at a rate that is capped or limited by a percentage + prime rate at the time of the loan start. Make sure you know what these terms are before you agree to an ARM.

 

Own Your Home Faster - turn a 30 year into a 15 year payment

There are several ways to own your home faster, each one affects the principal balance.

You can, if your lending institution allows::

Make two payments per month – but for half the amount. So if your mortgage payment is $2000, then make one payment on the 15th and the other on the 30th. Set this up with your mortgage company before you begin doing this to ensure that there are no pre-payment penalties and that the payments will be applied correctly. By applying this method to pay a typical 30-year term loan, you will own your home in 21 years instead of 30.

Make extra payments per month. This directly affects your principle and if done consistently will turn a 30 year term into a 15 year term with as little as an extra $100 per month. Check with your mortgage company first.

One time during the year, when you have extra money, make an extra full mortgage payment. This can turn a 30-year term into a 12-year term. Check with your mortgage company first.

In all cases, check with your mortgage company first for restrictions, and to ensure the method you have chosen will do what you want it to do to and work with the type of loan that you have.