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MortgageRefinancing-A1.com
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What a Mortgage IsA mortgage is a loan taken on some property of the borrower. Most often, the guarantee of the loan is the home of the mortgage holder and it is the way that lets him or her to buy a house paying only a small fraction, usually 20% or less, of its total value. The rest is paid back throughout the life of the mortgage in fixed monthly payments, usually along 15, 20, 30 or more years. If the borrower defaults these payments, the home goes to judicial foreclosure and the money obtained is used to pay for the remaining of the loan. Mortgage AffordabilityThe very first step you should take when shopping for a mortgage is deciding how much
you can afford to pay. This will save you time and frustration. Important factors to
take into account are the borrowed amount, interest rate, points, term, down payment, the
amount of cash you can allocate to the mortgage, your existing indebtedness and
the ratio of housing expense to your income. Use our
Mortgage Affordabilty Calculator
to estimate what mortgage is best for you: Mortgage PointsPoints are a one-time upfront payment that the borrower makes to the lender at the time of closing the mortgage. It is a fee like the interest, not a part of the down payment. Usually, mortgage lenders offer a variety of combinations of interest rates and points, for example, 6.0% and 2 points, 6.5% and 1 point or 7.0% and no points. At first sight, it may seem that the best deal is that of zero points, but it is not necessarily so, because more points are offered with smaller interest rates and vice versa. The lender sees his fees as composed of these two parts, the interest and the points, and compensate lower and more attractive interest rates with higher points. The best deal for you depends mainly on how long you plan to stay in the house. For long stays, the best deal is the lowest interest rate, because in the long run this will result in savings. If you plan to stay only a few years, then less points or zero points are better, because of lower starting cost. Points can be negative, for example a rate of 8% may be offered with -1 point. This imply that you receive points money in addition to the loan, and the additional cash can be used to cover for the initial expenses. However, it also means higher monthly payments along the life of the loan. Mortgage InsuranceMortgage lending institutions in the US usually require that the borrower makes a down payment of 20% of the property value, so that the loan covers only 80% of it. This makes that the guarantee to loan ratio is at least 1.25. For example, if you are buying a $300,000 home you may be required to pay down $60,000. However, lenders normally accept smaller down payments, as low as 10% or 5% or even less, if you buy Private Mortgage Insurance, which guarantees the repayment of the loan. Of course, in this case the cost of the insurance will add to your monthly mortgage payments. In the affordability calculator you can see the effect of insurance on the monthly payments for different down payment percentages. Minimum Monthly IncomeTo qualify for a mortgage loan you will be required to demonstrate enough paying capacity to repay it, by showing income about three times higher than the housing expenses. The customary figures are that your mortgage payments do not go above 33% of your monthly income, although many lenders may require a lower 28%, hence you should have income which is equal or above a "Minimum Monthly Income" as that computed in the mortgage affordability calculator calculator. Mortgage TerminologyMortgages can have a fixed interest rate throughout the life of the loan or a variable interest rate. In this last case it is called an Adjustable Rate Mortgage or ARM. ARMs are normally characterized by two numbers separated by a slash, as, for example, a 5/1 ARM. The first digit indicates the number of years along which the initial interest rate is maintained; the second number is the period in years in which the rate is adjusted. So, a 3/1 ARM is a variable interest rate mortgage that will have the initial rate fixed for three years and after that the rate is adjusted annually. Due to the existence of points and other fees, the real interest rate paid in a mortgage is higher than the declared rate. The real rate of a mortgage computed taking in account all costs is known as the Annual Percentage Rate or APR. So, for example, a mortgage may have an interest rate of 6.78% and an APR of 7.15%. The LOCK is a written guarantee in which the lender agrees to maintain the quoted interest rate and points for a specified period of time, usually 30 days. A HELOC is a Home Equity Line of Credit. It is a special kind of mortgage in which, a line of credit is opened to the borrower who can withdraw money in variable amounts as he or she needs it. HELOCs usually have very flexible repaying schedule and the interest rate is charged on the amount of money really borrowed only. In some HELOCs, called Interest-Only Loans, or IO, the borrower even can postpone payments of principal for several years. However, after the interest-only period expires, the loan is amortized through monthly payments as in a normal mortgage. A jumbo is a mortgage loan for an amount higher than the upper limit allowed under the Freddie Mac and Fannie Mae programs, that is currently set at $417,000. Any mortgage loan larger than this is a jumbo loan or mortgage. It can be fixed interest or ARM. An FHA is a mortgage insured by the Federal Housing Administration. Usually reserved for the benefit of the military. A VA is a mortgage guaranteed by the Veterans Administration. |
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