Mortgages

A mortgage – is likely the largest debt you’ll ever take on. A mortgage is actually made up of several parts; the collateral you used to secure the loan, your principal and interest payments, taxes and insurance.

Since most mortgages last 15 to 30 years of monthly payments, it helps to understand the working parts.

Collateral

Your home is the collateral for the mortgage loan. Legally you have agreed to repay the loan plus interest and other costs.

If you pay you stay if you don't - you don't! The lender then has the right to take back the property and sell it to cover the debt, a process known as foreclosure.

Principal and Interest

The principal is the sum of money you are borrowing to buy your home. Lenders require you to make a down payment that down payment is a percentage. Since these percentages vary by the type of loan you qualify for lets put a typical range of down payments from 3.5% to 20%. Again the down payment varies by loan type.

Interest (rate) is what the lender charges you on the money you borrowed.

Principal and interest comprise the bulk of your monthly payments in a process called amortization (The paying off of debt with a fixed repayment schedule in regular installments over a period of time.) Your monthly payments largely go toward paying off the interest in the early years, and gradually reduce the principal later on.

Taxes

In addition to your principal and interest, your mortgage payment will likely include property taxes. These taxes generally go towards financing the costs of running your community – for example, to build and maintain schools, roads and other infrastructure, and to provide certain public services. Generally, if your down payment is less than 20%, your lender will usually set up an escrow account to collect the taxes, which are rolled into your monthly mortgage payment.

Insurance

As you home owner there are a few types is "insurance" to be aware of;

If you choose a conventional loan and put down less than 20% of your home’s total value at closing, your lender will likely require you to pay PMI private mortgage insurance. This insurance protects the lender from you defaulting on the mortgage.

If your loan is backed by the FHA Federal Housing Administration, you will have to pay MIP Mortgage Insurance Premium. This insurance protects the lender from you defaulting on the mortgage.

Yes, both loan products have the same insurance yet are referred to by two different names!

Home Owners Insurance is a must you have home owners insurance to cover your home and your personal property against losses from fire, theft, bad weather and other causes.

And if your home is in a federally designated high flood-risk zone within a flood plain and you are signing for a federally insured loan, federal law mandates that you must buy flood insurance.

Title Insurance is discussed under the pull down - Title Insurance

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Angela Brant REALTOR | Direct: 402-215-1529
RE/MAX Results | 11212 Davenport St - Omaha, NE 68154-2628 | Office: 402-884-7707