Mortgage

Mortgages 101: The Basics

January 5, 2021

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Mortgages 101: The Basics

So, you wanna talk about mortgages? Well, you came to the right place. Let us break it down for you. 

First things first, what IS a mortgage? A mortgage is a legal contract between you and a lender. It outlines your promise to pay back all the money you borrow for a house, plus interest. If you break that promise, the lender has the right to repossess your home and sell it in foreclosure. 

Money, as you might have imagined, plays a massive role in the mortgage process. The big four money keywords are as follows: principal, down payment, and interest, and term

The principal is the amount of money you borrow from the bank to pay for the house. You could also think of the principal as the loan. An easy way to think about the principal is this:

Principal = purchase price – down payment 

Now let's talk down payments.

A down payment is the amount of your own money that you put towards the house right away. It's an upfront payment that determines how much your principal will be. 

Now we have interest. Interest is the amount of money the bank charges to give you the loan. In most instances, it’s referred to as an interest rate and comes in a percentage. Interest rates can depend on a lot of things, but the big-ticket item is your credit score. The better your credit score, the lower the bank’s risk; therefore, the lower the interest rate.

Finally, the term of a loan is the length of time you have to pay it off. Most loan terms are either 15 or 30 years. The longer the term, the lower the monthly payments.

In addition to those big four terms, there are some smaller items to understand: taxes and insurance. Owning a home comes with all new kinds of payments, such as property tax (which goes towards public services, schools, and infrastructure) and homeowners’ insurance (basically a security blanket in case of emergency, just like health insurance). In some instances, you may even need to pay for mortgage insurance.

As you can see, a mortgage loan is a big and sometimes confusing commitment. But luckily for you, we are here to walk you through it!

Still curious? Get a quote and see what your mortgage loan could look like!

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