After the Mortgage

After the Mortgage

By Michael Haynes,

Supervisor, HomeOwnership Center

I’m ready to get a mortgage… now what?

Financing the purchase of your home can be a daunting task if you let it. You will need funds to acquire the property, cover a down-payment and pay closing costs. Start out with asking yourself, “What do I need from the lender?” Do you need a mortgage to acquire the property but already have money saved for the required down-payment and estimated closing costs?  Do you need funds to cover all three areas?  Answering these questions will help you determine the product that may be best suited for you.

The “mortgage” is the legal document that allows you to acquire and own your home while using the home as collateral. Simply stated… you own the home as long as you make monthly mortgage payments as agreed in the note. Defaulting on mortgage payments gives the lender the right to take possession of your property through a process called foreclosure.

The mortgage payment that you will make each month covers several areas. The payment covers the principal, interest, real estate property taxes, and mortgage insurance. Covering the principal is crucial because that is how you pay off the mortgage loan. A wise borrower will try to make higher payments towards the principal as much as possible so that the loan can be paid off at a faster pace. Lenders love interest payments!!! The lender’s incentive to loan you money is based on the amount of interest that they can charge as a return on their investment of offering you a loan. The interest is the lender’s profit. Most lenders and mortgage programs will request that you make one payment per month that consists of principal, interest, taxes, and insurance. Upon receipt of your mortgage payment each month, the lender will apply a portion of the payment to your loan principal, a portion toward mortgage interest, and then place the rest in an escrow account. As your insurance and real estate taxes become due, the lender will automatically pay them from the escrow account. 

Mortgage insurance protects the lender in case you default in your mortgage. There are several mortgage products that do not require mortgage insurance premiums. The benefit of this is that the borrower will have a lower mortgage payment.

The lender is able to offer you a principal and interest payment that remains the same until the loan is paid off based on amortization. The term amortization refers to the gradual repayment of a mortgage by installments that will pay off the loan at the end of a fixed period of time. Whenever you hear about a 30-year mortgage, remember the term AMORTIZATION!

The goal of a prospective borrower should always be to end up with the most affordable mortgage. Give us a call and let us demystify the mortgage process for you.