FAQ about Mortgages
There won’t be many occasions where you will need to invest a large amount of money like a home. Not only that, but a mortgage will probably be your biggest debt during your lifetime.
Mortgage are often look so simple but are in fact very confusing. Seeing how you will most likely have your mortgage by your side as a trusty partner for a while, it is a good idea to know with what you will be stuck with.
What is more precisely a mortgage?
A mortgage is a type of loan where a lander helps financing a home buyer in purchasing a property. Their payment it’s done monthly over the course of many years and consists in:
- Principal – the equity of your home
- Interest – the extra rate that is charged in order to obtain such a loan
- Insurance – if your down payment for the loan is less than 20% of the purchase price
- Taxes – extra payments calculated based on the value of the property
The house will act like a collateral in exchange for the borrowed funds.
How many types of mortgages are available?
There are some options such as:
- Fixed-rate mortgages – Mortgage which the interest rate will remain the same throughout the term of your loan, which translates into the exact same payments each month.
- Adjustable-rate mortgages – Mortgage which has a rate that will fluctuate according to the market trends.
- Government-insured loans – Loans that are insured by the government, like FHA loans and VA loans.
- Conventional loans – Mortgages that are not guaranteed by the federal government
Is there a possibility of me losing the house if I fail to pay?
Yes, that’s why your house acts like a collateral. If you fail to make your regular monthly mortgage payment you will be in default. If this happens, the lander will usually allow you a days worth of a grace period to make up for the missed loan installment.
If your lander chooses to note your mortgage as being in default, a Notice of Default will be filed with the country recorder. If the lander doesn’t receive a response from you and still doesn’t receive the missed payment, foreclosure process can begin. A lawsuit is filed and notice will be given about the lander’s intent to sell the house in order to get their money back. After around six months, the lander can sell the house and notify you that you need to vacate the property.
Is there possible to make larger payments than the bank wants?
It depends on the terms that you set with your lander. Most of the times, they will allow extra payments to be made so you shorten the life of the mortgage. There is also a possibility to give some money once per year towards the principal. Some landers might charge a fee for early mortgage repayment, so you have to check beforehand about considering such stuff.
Is it more affordable to pay my mortgage faster?
Yes it is more affordable if you are not doing any other extra investments. Paying it faster will result in less interest that will need to be paid at the end of the term. By paying a mortgage valued at 200.000$ with a 3.5% fixed rate over 30 years will result in around 45.000$ loss on interest if you were to pay that same value in 20 years.
How much interest am I going to pay?
It is highly dependent on a number of factors such as your credit score, financial history and more importantly the current rate of the lending industry. Borrowers with a solid financial positions and a high credit score will most of the time get a lower rate. Those with poor credit scores and bad financial histories will be charged more.
Am I allowed to have more than one mortgage?
Yes, there is not any law that stops you from doing that. However, it still depends on the loan program that you have. By having many mortgages you are going to pay higher interest rates and fees.
Am I allowed to have more than one mortgage on the same house?
Yes, you are indeed allowed. Many Americans take out a second mortgage so they free up some equity in their homes and use the money towards other large investments, like a car, a home renovation or a university tuition. Consolidating debt or covering part of the down payment on the first mortgage is also possible to do.
How many years will I be paying my mortgage for?
It depends on what term you settled for. The average term is around 25 years but you can take one ranging between 10 to 30 years. Having a shorter term means lower interest rates and higher monthly payments.
Do different banks offer different mortgages?
Yes, they do. This gives you a good idea to search around and see which lander suits you best. There are a ton of banks and landers which want to be as competitive to each other as possible. Search around, many might give something entirely different than others.
If my credit score is really low am I still eligible for a mortgage?
It depends on how low your score really is. Usually, a score of under 520 will be most likely denied a conventional mortgage. Still, there might be some private landers who are willing to give a loan to those with a bad score, at the cost of a very high interest rate. Generally, the lower the credit score, the higher the interest rate with which you will be charged with. They have to protect themselves somehow in the event of a mortgage default, and usually those with a bad credit score are seen as less capable of making payments regularly.
Will a bank give me 100% of the purchase price?
Yes, but it still depends on your credit score and financial history. There is no need to put a down payment with a 100% home financing loan. New buyers and faithful, returning buyers might be eligible for 100% financing too.