Mortgages By Ryan White and Danny Bennett

Definition- A debt program in which the collateral is the real estate, and the borrower has to pay a reoccurring charge.
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Qualifying for a mortgage

To qualify for a mortgage, good credit is essential. Mortgage lenders want to make sure you don't borrow too much. They look at how much your mortgage payments are relative to your income, ensuring you have the ability to pay. Your FICO score tells lenders whether you are a worthy risk. The number is an indicator of whether you pay bills on time and whether you have outstanding debt. First-time home buyers, may qualify for a special mortgage, which can help.

Fixed Rate Mortgages
Fixed rate mortgages are beneficial because your payments will not vary when you use a fixed rate mortgage, which allows the consumer to always know what they are getting. With a fixed rate mortgage, you typically have a higher monthly payment than with other mortgage choices. This is because you are paying a premium for the safety that comes with this type of mortgage.
  • 30 Year Fixed Rate Mortgages- The 30-year fixed-rate mortgage is one of the most popular mortgages. Many people like the fixed interest rate and lower monthly payments. But since the term of the loan is long, you’ll pay more interest over the life of the loan than you would on a shorter-term mortgage, and you'll build equity more slowly. A 30-year fixed rate mortgage is generally the safest and best bet, especially if you expect to live in your house for more than 5 years or so.

  • 15 Year Fixed Rate Mortgages- You generally pay a lower interest rate with a 15-year fixed-rate mortgage than you would for longer-term fixed-rate mortgage loans. You will pay less interest than you would with a longer-term loan and build equity more quickly. However, your monthly payments will be higher for a 15-year fixed-rate mortgage than they would be on a longer-term mortgage.

Advantages of a Fixed Rate Mortgage-
  • If you think interest rates could rise in the next few years, a fixed rate mortgage you will keep the current rate.
  • If you plan to stay in your home for many years.
  • You can also calculate how long it will take to pay off all the interest. Which enables you to figure out your payment plan.
  • If you prefer the stability of a fixed principal/interest payment to a payment that changes periodically (which is what happens with an adjustable-rate mortgage.)

Adjustable Rate Mortgage-
The interest rate for an adjustable-rate mortgage varies over time. The initial interest rate on an Adjustable Rate Mortgage is set below the market rate on a comparable fixed-rate loan, and then the rate rises as time goes on. If the ARM is held long enough, the interest rate will surpass the going rate for fixed-rate loans. ARMs have a fixed period of time during which the initial interest rate remains constant, after which the interest rate adjusts at a pre-arranged frequency. The fixed-rate period can vary significantly - anywhere from one month to 10 years. Shorter adjustment periods generally carry lower initial interest rates.
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Factors that affect mortgage rates-

Inflationary trends- An increased rate of inflation increases the interest rate on home loans. On the other hand, lenders reduce the rates during deflation.
Stock market- When stocks go up, individuals prefer putting money on stocks over investing on mortgage backed securities. In such a case, the interest rate on home loans will increase.
Types of mortgage- There are different types of mortgages available at varying interest rates. If you choose an adjustable-rate mortgage, the initial rate will be lower than that of fixed-rate mortgage and generally increase with rise in market rates.
Credit score- Your credit score is the most important factor that lenders consider while offering you a home loan. If you have a good credit score, you will be able to obtain the mortgage at a lower rate of interest.
Type of property you are purchasing- If you require a home loan to buy your primary residence, lenders will offer you a reduced rate. This is so because lenders believe that people generally do not default on mortgage payments on primary residence.

Second Mortgages
A second mortgage allows you to borrow against the value of your home. It is simply another mortgage on your home– a loan secured against the property. The term “second” indicates that the loan does not have priority on your home in case you default. Instead, your first mortgage has priority and would be paid before any funds go towards the second mortgage. People may take on a second mortgage to fund a child's college education, or to purchase a new vehicle

This is a calculator that allows you to predict your mortgage payment. Simply by plugging in a little info, such as your zip code, property value, the loan amount, interest rate, and time to pay off the loan. => http://www.mortgage101.com/mortgage-calculators

Mortgage Terms

Principle- a comprehensive and fundamental law, doctrine, or assumption.
Interest- Right, title, or legal share in something.
Tax- a sum of money demanded by a government for its support or for specific facilities or services, levied upon incomes, property, sales, etc.
Insurance- a means of guaranteeing protection or safety.
Debt- Something owed, such as money, goods, or services

Consequences of not paying on time
  • Late Fees- Money you have to pay if you do not pay your payment on time.
  • Default- When one fails to make a payment lenders will often extend a 15 day grace period, when this is up the lender files for a Notice of Default.
  • Foreclosure- If the lender does not make their payment after receiving their Notice of Default, the lender may initiate the foreclosure process. This may happen as soon as three months. Within 6 months of the first missed payment the lender can place the house for sale.

How Much Your Monthly Mortgage Should Be

A general rule of thumb is that no more than 28% of gross monthly income should go toward house-related debt (including taxes and insurance)


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