The Basics Of A Home Mortgage
- Date: 2009-02-07 - Word Count: 620
Share This!
Purchasing a home involves getting a mortgage. A mortgage is a written pledge of property used as security for the repayment of a loan. The property you purchase is the collateral for the mortgage. If you fail to make payments on the loan, the lender can repossess your home. As a result, the lender has some legal rights on your property as you pay off your mortgage. Unlike a standard loan, the mortgage is used to enforce the lenders rights to the property if the borrower does not repay the home loan. If the borrower does not keep up with his/her monthly mortgage payments, the borrower can obtain the home through what is called foreclosure. Foreclosure is the forced sale of a home or property that is pledged as security against a mortgage. The property is sold so the lender can recoup its losses on the loan.
Home mortgage loans are offered commonly in 15 or 30-year fix rate periods. The term refers to the amount of time the lender allows for the mortgage loan to be repaid. Therefore, a 30-year loan spreads loan payments across a 30-year time span. The fixed-rate refers to the interest rate. The interest rate is a percentage of the loan the borrower must pay to the lender, in addition to the monthly payment, for lending them the money. In a fixed-rate mortgage, the interest rate does not change. It remains constant throughout the term of the loan.
The actual amount of the mortgage is called the principal. When the borrower first starts paying off the loan, interest is paid off first, then the principal. For example, if the interest rate on your mortgage is 6% per year, and the loan amount is $100,000, each year you will pay - in addition to the principal - $6,000 in interest to the lender. The lender includes interest into the monthly payments, however, the principal and interest isn't split 50/50 for each monthly payment. Interest is paid first; anything remaining goes toward paying off the principal. To figure out the percentage of your monthly that will go to interest payments, the lender takes your mortgage interest rate (6%) and breaks it down into a decimal (.06). Then the lender divides that decimal by 12 (.06/12 = .005). Then the lender takes the new number and multiplies it by the principal of the mortgage (.005 x 100,000 = 500). The end result is the monthly interest rate payment. If your overall mortgage payment is $700, $500 goes towards paying off the interest, and $200 goes toward paying off the principal.
However, as you pay down the principal, the actual dollar amount paid to interest compared to what is paid to principal changes each month. Your overall monthly payment doesn't change, but the ratio between interest-to-principal pay off does. For example, after you pay your first month's mortgage payment, the next month's payment is based on the principal being $99,800 ($200 less than the first month). So, when the formula is applied to the next month's payment, the interest and principal payments are adjusted based on what is still owed ($99,800), the interest rate, and the established monthly mortgage payments.
Fixed-rate mortgages aren't the only home loans offered. Some loans have fluctuating interest rates while others have shorter terms. Most new homebuyers stick with a fixed rate 15 or 30-year mortgage because there are no surprises; the interest rate and monthly payments remain the same.
If you're about to buy a home, be aware of how your standard mortgage operates, and establish early on if you have the finances to afford a mortgage. If you get involved in a mortgage and later discover you can't afford it, it could cost you your new home.
Home mortgage loans are offered commonly in 15 or 30-year fix rate periods. The term refers to the amount of time the lender allows for the mortgage loan to be repaid. Therefore, a 30-year loan spreads loan payments across a 30-year time span. The fixed-rate refers to the interest rate. The interest rate is a percentage of the loan the borrower must pay to the lender, in addition to the monthly payment, for lending them the money. In a fixed-rate mortgage, the interest rate does not change. It remains constant throughout the term of the loan.
The actual amount of the mortgage is called the principal. When the borrower first starts paying off the loan, interest is paid off first, then the principal. For example, if the interest rate on your mortgage is 6% per year, and the loan amount is $100,000, each year you will pay - in addition to the principal - $6,000 in interest to the lender. The lender includes interest into the monthly payments, however, the principal and interest isn't split 50/50 for each monthly payment. Interest is paid first; anything remaining goes toward paying off the principal. To figure out the percentage of your monthly that will go to interest payments, the lender takes your mortgage interest rate (6%) and breaks it down into a decimal (.06). Then the lender divides that decimal by 12 (.06/12 = .005). Then the lender takes the new number and multiplies it by the principal of the mortgage (.005 x 100,000 = 500). The end result is the monthly interest rate payment. If your overall mortgage payment is $700, $500 goes towards paying off the interest, and $200 goes toward paying off the principal.
However, as you pay down the principal, the actual dollar amount paid to interest compared to what is paid to principal changes each month. Your overall monthly payment doesn't change, but the ratio between interest-to-principal pay off does. For example, after you pay your first month's mortgage payment, the next month's payment is based on the principal being $99,800 ($200 less than the first month). So, when the formula is applied to the next month's payment, the interest and principal payments are adjusted based on what is still owed ($99,800), the interest rate, and the established monthly mortgage payments.
Fixed-rate mortgages aren't the only home loans offered. Some loans have fluctuating interest rates while others have shorter terms. Most new homebuyers stick with a fixed rate 15 or 30-year mortgage because there are no surprises; the interest rate and monthly payments remain the same.
If you're about to buy a home, be aware of how your standard mortgage operates, and establish early on if you have the finances to afford a mortgage. If you get involved in a mortgage and later discover you can't afford it, it could cost you your new home.
Related Tags: finance, loan, mortgage, foreclosure, interest rate, home mortgage, collateral
For more articles and suggestions, visit www.bills.com/mortgage-basics-info-article/ Your Article Search Directory : Find in Articles
Recent articles in this category:
- Understand The Fha Guidelines Before Considering Fha Mortgage
The U.S. economy was hit hard by the global financial meltdown. In the housing sector, the crisis is - Basic Facts About Multifamily Apartment Construction Loans
When you make an investment, you surely think of getting something out of it to make the deal profit - Commercial Mortgage Refinance Loan - Ideal Solution For Financial Problems
Financial security is something which we have to plan from before. In life, there is no certainty wh - Free Government Grant Money Eligibility Requirements
All of us hear about free government grant money. But what is involved in obtaining this money? What - Top 10 Tips On Buy To Let Mortgages And Property Hunting
If you are looking for an opportunity to invest your savings or any money you have come into, there - A Few Tips On How To Stop Foreclosure
In case you are facing certain financial catastrophe caused by a loss or relocation of a job, or wha - How To Stop Foreclosure And Lose Your Residence To The Bank
In today's market, there are more and more citizens that get big loans then they use their home as a - Most Excellent Way To Stop Foreclosure - The #1 Blueprint For Saving Your Home
Just what is the best measure to stop foreclosure? No doubt you are browsing for an answer to that q - Act Fast To Stop Foreclosure
If you would like to find out how you can put a stop to foreclosure, there is not much to accomplish - Tips For Buying A Home With No Money
There is a popular belief that you can only buy a home if you have great credit. This is false becau
Most viewed articles in this category:
- Mortgage Refinancing - Rate Caps Protect You When Refinancing With an Adjustable Rate Mortgage
Adjustable Rate Mortgages can save you money when mortgage refinancing if you fully understand how t - 100% Mortgage Loans: What You Need to Know
Coming up with a 20% down payment can be a difficult task for many potential homebuyers. If you are - Home Equity Loan Pitfalls
The home equity loan came of age in 1996 when changes in the tax law eliminated deductions for the i - Mortgage Refinancing: How the Fannie Mae Weekly Yield can Help You Comparison Shop
Mortgage refinancing without knowing Fannie Mae's weekly yield is like buying a used car without kno - How to Pay Off Your Mortgage in 7 Years, Without Extra Payments
One of the most exciting new topics concerning wealth is “How to Pay Off Your Mortgage in - Mortgage Rate Comparison
Trying to get an "apples to apples" mortgage rate comparison can often be quite a hassle. Traditiona - Should I Pay Off My Mortgage Early?
Many people think that real estate debt is good debt. They think that their mortgage is their bigges - Mortgage Refinancing: Beware the Mortgage Vultures
If you are in the process of mortgage refinancing you need to be wary of overpaying for your loan. - Mortage Loans - How Much Does It Actually Cost In The End
Mortgage loans are the loans used to finance most people's first home. It is the big loan that ever - Where To Locate Home Improvement Loan Companies
Where to locate home improvement companies is a question that arises from many different people. Som