What is a mortgage?
Generally speaking, a mortgage is a loan obtained to purchase real estate. The “mortgage” itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.
Do I get a tax advantage from having a mortgage?
You should consult a tax attorney or accountant for specific details, but interest on a mortgage is usually tax deductible. Interest on credit cards or automobile loans is not normally tax deductible.
What is a loan to value (ltv), and how does it determine the size of my loan?
The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific ltv limit. For example: with a 95% ltv loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000), and would have to pay, $2,500 as a down payment.
The ltv ratio reflects the amount of equity borrowers have in their homes. The higher the ltv the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher ltv loans (80% or more) usually require mortgage insurance policy.
What type of loans are available and what are the advantages of each?
|Fixed Rate Mortgages:||Payments remain the same for the life of the loan|
|30-year||Housing cost remains unaffected by interest rate changes and inflation|
|Adjustable Rate Mortgages (ARMS):||Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits|
|Balloon Mortgage||Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is clue or refinanced (though not automatically)||Generally offer lower initial interest rates.Monthly payments can be lowerMay allow borrower to qualify for a larger loan amount.|
|Two-Step Mortgage||Interest rate adjusts only once and remains the same for the life of the loan|
|Linked ARMS||linked to a specific index or margin|
When do ARMs make sense?
An arm may make sense if you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren’t concerned about potential increase in interest rates.
What are the advantages of 15- and 30-year loan terms
- In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions
- As inflation and cost of living increase, mortgage payments become a smaller part of overall expenses.
- Loan is usually made at a lower interest rate
- Equity is built faster because early payments pay more principal
How do I receive my loan documents?
After you complete your application with a mortgage consultant, you will receive a package in one of two ways: via e-mail with a link to your loan status page or via express mail. This package will contain your loan application and disclosure documents.
Should I roll in my fees?
This choice comes down to “pay now” or “pay later.” if you have the funds now, it makes sense to cover the expenses out-of-pocket and save through lower loan payments and interest costs on a smaller loan. On the other hand, if your budget is tight, rolling in the costs with your loan amount allows you to get the loan without the out-of-pocket costs.
Can I make extra principal payments so I can pay off the loan more quickly?
This depends on your loan type, your loan officer will discuss this possibility with you and the impact the extra payments will have on the amortization schedule over the remaining term of your loan.