Mortgage Basics

Author: DirectMortgage Total views: 3 Word Count: 454

There's a lot to know about mortgages and it's smart to do some research before buying your home. This article will help you get up to speed on some of the mortgage basics you need to know.

Choosing to obtain a mortgage is an important and significant decision. It costs money both when the mortgage is obtained, and throughout the life of the loan in the form of interest. It also results in a large monthly expense. Therefore, the borrower should carefully choose where to purchase a loan as well as what type of loan program to choose.

As you compare mortgages, you'll want to understand some basic terms: mortgage, rate, monthly payment, closing costs, APR, ARM, and fixed.

Let's start with the definition of a mortgage. A mortgage is when you borrow money to either refinance your current home or to buy someone else's home. The collateral for the loan is the house itself. In other words, if you were to break your mortgage contract, such as by missing payments, then the mortgage holder would be able to take possession of your home.

The rate is the percentage used to calculate how much interest you'll pay on your mortgage. This is an important number because it determines your cost for borrowing money. When the interest rate on your loan always stays the same, the rate is called "fixed". When the rate has the possibility of changing, then the loan is called an ARM or adjustable rate mortgage.

Besides interest, there are additional costs associated with obtaining a home loan. These could include fees for underwriting, the application, checking your credit history and scores, having the property's value appraised, loan origination, title search and insurance, etc. Together, these fees are called "closing costs".

While the interest rate is an important number, by itself it is insufficient for comparing lenders. This is because lenders and brokers can charge different fees, making a loan from Lender A actually less expensive than from Lender B, even though it has a higher interest rate. In order to help provide a number that can be compared across lenders, the government has regulated that closing costs be added to the loan amount to determine what is known as the Annual Percentage Rate or APR.

The total monthly payment, also known as PITI, is another important measurement to consider when choosing a loan. The PITI includes principal (P), interest (I), property taxes (T), hazard or homeowner's insurance and mortgage insurance (the second "I"), and HOA dues. When mortgage insurance is taken into account, loans with a higher interest rate might actually have a lower monthly payment than loans with lower interest rates.

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About the Author

If you're wanting a Utah mortgage or a Salt Lake City mortgage, visit us at www.directhouse.com.

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