General Mortgage Loan Financing Questions - The Basics
33.
What Is A Home Mortgage?
Generally
speaking, a home mortgage is a residential home loan obtained to purchase real estate.
The "home mortgage" itself is a lien (a legal claim) on the
home or property that secures the promise to pay the debt. All home mortgages
have two features in common: principal and interest.
34.
What Is A Mortgage Loan-To-Value (LTV)?
The
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
mortgage loan has a specific LTV limit. For example: With a 95% LTV loan
on a home priced at $50,000, you could borrow up to $47,500 (95%
of $50,000), and would have to pay,$2,500 as a down payment.
The
LTV ratio reflects the amount of equity borrowers have in their
homes. The higher the LTV the less cash homebuyers are required
to pay out 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.
35.
What Types Of Mortgage Loans Are Available?
Fixed
Rate Mortgage: Payments remain the same for the the life of the
loan
Types
Advantages
Adjustable
Rate Mortgages (ARMS): Payments increase or decrease on a regular
schedule with changes in interest rates; increases subject to limits
Types
Balloon 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 automatically)
Two-Step Mortgage- Interest rate adjusts only once and remains the same
for the life of the loan
ARMS linked to a specific index or margin
Two-Step Mortgage Advantages
Generally
offer lower initial interest rates
Monthly
payments can be lower
May
allow borrower to qualify for a larger loan amount
36.
When Do ARM’s Make Sense?
An
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.
37.
What Are the Advantages of 15- And 30-Year Loan Terms?
30-Year Mortgage:
In
the first 23 years of the loan, more interest is paid off than
principal, meaning larger tax deductions.
As
inflation and costs of living increase, mortgage payments become
a smaller part of overall expenses.
15-year Mortgage:
Loan
is usually made at a lower interest rate.
Equity
is built faster because early payments pay more principal.
38.
Can I Pay Off My Loan Early Without Penalty?
Yes.
By increasing the amount paid each month by 1/12 of your current home mortgage payment - essentially making an extra monthly payment each year, you can accelerate the process of paying
off your home loan faster. When you send extra money, be sure to indicate that
the excess payment is to be applied to the principal. Most mortgage lenders
allow loan prepayment, though you may have to pay a prepayment penalty
to do so. Ask your mortgage lender for details.
39.
Are There Special Home Mortgage Loans For First-Time Homebuyers?
Yes.
Mortgage lenders now offer many affordable mortgage options which can
help first-time homebuyers overcome obstacles that make purchasing
a home difficult. Mortgage 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.
40.
How Large Of A Down Payment Do I Need?
There
are mortgage options now available that only require a down payment
of 3% or less of the new home purchase price. But the larger the mortgage 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 home mortgage loan. When considering the size of your mortgage down
payment, consider that you’ll also need money for closing costs,
moving expenses, and - possibly -repairs and decorating.
41.
What Is Included In A Monthly Mortgage Payment?
The
monthly mortgage payment mainly pays off principal and interest.
But most mortgage lenders also include local real estate taxes, homeowner’s
insurance, and mortgage insurance (if applicable).
42.
What Factors Affect Home Mortgage Payments?
The
amount of the down payment, the size of the mortgage loan, the MORTGAGE interest
rate, the length of the repayment term and payment schedule will
all affect the size of your mortgage payment.
43.
How Does The Mortgage Interest Rate Factor In Securing A Mortgage Loan?
A
lower mortgage interest rate allows you to borrow more money than a high
mortgage interest rate with the some monthly mortgage payment. Home mortgage interest rates can fluctuate
as you shop for a home loan, so ask-mortgage lenders if they offer a rate "lock-in"which
guarantees a specific mortgage interest rate for a certain period of time.
Remember that a mortgage lender must disclose the Annual Percentage Rate
(APR) of a home 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.
44.
What Happens To Fixed Rate Loans If Mortgage Interest Rates Decrease?
If
interest rates drop significantly, you may want to investigate a mortgage refinance.
Most experts agree that if you plan to be in your house for at least
18 months and you can get a rate 1% less than your current one,
home refinancing is smart.Home mortgage refinancing may, however, involve paying many
of the same fees paid at the original closing, plus origination
and application fees.
45.
What Are Discount Points?
Discount
points allow you to lower your mortgage interest rate. They are essentially
prepaid mortgage interest, With each point equaling 1% of the total mortgage loan
amount. Generally, for each point paid on a 30-year fixed rate mortgage, the
home mortgage interest rate is reduced by 1/8 (or.125) of a percentage point.
When shopping for mortgage loans, ask mortgage lenders for an home mortgage interest rate with 0
points and then see how much the mortgage 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 mortgage 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.
46.
What Is An Escrow Account? Do I Need One?
Established
by your mortgage 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 mortgage lender’s responsibility
to make those payments.
For more helpful mortgage tips on mortgage refinancing, home loans, reverse mortgages or a home equity line of credit, contact FreeLoanComparison.com today!
Last update: November 14, 2008
