| Although each individual home financing package has its own variety of features, the concept of a mortgage is really quite simple: a mortgage is a loan to help you finance a home. Your lender advances you a certain amount of money, which you repay over a specified period of time. |
| Rates, Points and Loan Fees The total cost of your mortgage is determined by a number of different factors, most notably the interest rate, discount points and loan fees. The expenses that contribute to the cost of your loan can be expressed as the annual percentage rate (APR). When considering a loan, keep in mind that rates, points and fees should be considered together. The interest rate alone only tells part of the story.
Discount Points allow you to“buy down“your interest rate at closing. One point equals 1% of your loan amount. The more points you pay, the lower your interest rate will be and the less you will have to pay each month. Loan Fees are up-front charges to cover the cost of originating, processing and closing your loan, among other things. An origination point is a loan fee that equals 1% of your loan amount.
|
| Your Monthly Mortgage Payment
Mortgage payments can generally be divided into four parts: principal, interest, taxes and insurance.
Interest is the cost of borrowing money. As noted above, the amount of interest you pay each month is determined by your interest rate. Taxes assessed by your local government will likely be collected by your lender as part of your monthly payments and then paid annually or semi-annually on your behalf. This process is known as an escrow. Insurance, like property taxes, is normally collected by the lender in an escrow account. Insurance offers financial protection and has two major components: Homeowner’s Insurance, also called hazard insurance, protects you against damage to your property caused by fire, wind or other hazards. Mortgage Insurance provides partial protection to your lender in the event that you fail to repay your mortgage. Whether you must pay mortgage insurance usually depends on the loan and the size of your down payment. |
| Click here to get Pre-Approved
|
Interest Rate
Principal