With mortgage interest rates being at an all time low, many lenders have recommended to their customers different options when buying or refinancing their mortgage. Dependent upon the amount of years they plan to live in their home, more and more mortgage options have been reintroduced into the market and banks have now pushed some of the programs to become popular among the newest homeowners.
After renting for three years and paying $1,000 for a one bedroom apartment, you have decided it is time to take the $1,000 a month and put it toward your own home. Buying never looked appealing due to the high interest rates but with the interest rate being low and the different options of mortgage programs, for a few dollars more a month, it is time to take the next step. The research begins with learning about mortgages and trying to find a price range that you feel comfortable with.
Borrowing $200,000 from a bank sounds like a lot, but paying $1,000 a month rent and not owning your home sounds like a waste. Once the mortgage is approved and you find a property, the monthly mortgage payment isn’t much more a month than what you were paying before. The difference is now your home becomes a tax write off and certain items, including the interest you pay in your mortgage payment, comes back to you at tax time.
If the mortgage of $300,000 is a traditional 15 or 30 year mortgage, the monthly mortgage payment includes your principal plus interest. Principal is the amount of money borrowed, $300,000, and the interest is the percentage the bank charges to borrow from them. Some mortgage companies add in the taxes to the monthly payment or give the customer a choice to pay the taxes themselves to the city. If the property taxes are included then the total monthly mortgage payment includes principle, interest, and taxes.
Now if the homeowners are planning to only live in the property for 5 years or less, many mortgage lenders may suggest an interest only loan. This means that none of the payments made to the monthly mortgage include principal; all that is being paid is the interest on the amount of money borrowed. Taxes can also be included into this type of loan and there are a variety of different programs including fixed and variable interest rates, sometimes referred to as an ARM. Each mortgage lender offers their own programs so check around to see which one fits your needs.
Private Mortgage Insurance or PMI is also known as points. Points are a certain percentage tacked onto your mortgage due to a number of reasons. Some can be you’re a first time home buyer and require a 20% down payment and can’t put down 20%, your refinancing and want to refinance for 100% of your total home, and many other reasons. Usually PMI can be paid off within the first year if you send an extra payment each month to cover the added expense. There are certain rules concerning PMI as well and must be paid off before attempting any change to your mortgage.
The best way to learn about mortgages and their payments is to ask a lender that can explain all the numbers relating to your future or current mortgage. Always be sure of your interest rate if it’s fixed or variable, if your taxes are included in your monthly mortgage payment, and what type of loan you are accepting. The first time going through the mortgage game can be tough to understand, but once you get through, it all begins to make sense.