mortgage loan office Tag

When it’s time to shop for a new home many buyers look at the total price of the place they plan to buy, then enter that into an online calculator to figure out the monthly payment. While it is a good idea to calculate payments in advance and make sure you can afford a home before you buy, there is often more in your total monthly mortgage payment than just the principal balance of the house. Here are five potential things you should be sure to calculate in your payments to make sure you’re getting a loan you can afford.

1: Principal & Interest

Unless you’re planning to pay cash, your monthly mortgage will include payments toward the principal balance (the amount you pay for the house) as well as interest. In the early years of the loan, the percentage you pay towards interest will be much higher, but will decrease as you get more of the principal balance paid down. The total amount of principal and interest depend on:

  • The price of your home
  • The interest rate you can qualify for
  • The total number of years in which you plan to repay the loan

2: Private Mortgage Insurance (PMI)

If you do not have 20% of the total purchase price of your home in cash that you can put as a down payment, you will likely have to pay mortgage insurance. Any amount you can put as a down payment is good because it reduces your total principal loan balance, but in order to protect themselves against potential losses, lenders require mortgage insurance as a safeguard until you have at least 20% equity in your home. The total amount of PMI varies, so it’s important to discuss it with your Utah mortgage loan company.

3: Property Taxes

Most homeowners pay a portion of annual property taxes each month, and the mortgage company holds it in an account until the taxes are due. This is convenient for homeowners because you can pay the taxes in small amounts rather than getting one large bill every year, and the taxes will be automatically paid by your lender so you don’t have to remember or risk the consequences of forgetting to pay. A local assessor or auditor’s office can help you estimate how much it will be for budgeting purposes.

4: Insurance

All homeowners are required to carry homeowners insurance, which is based on the total value of your home and how much coverage you want to get. If you already have insurance for a vehicle or other purpose, call your agent and find out what the monthly rates would be. In many cases you can get discounts for getting several different types of insurance through the same broker. Be sure to also ask if flood insurance is required, since that is separate from traditional homeowners insurance policies.

5: HOA Fees

Many homes today are built in neighborhoods called “homeowners associations” (HOAs). The planned communities will often charge an HOA fee that covers things like parks and recreational areas, snow removal, and landscaping for common areas. They can range from a small amount to several hundred dollars a month, so be sure to find out what they are before you buy and budget for it.

To learn more about mortgage loans and how to get qualified, or get help calculating just how much home you can afford, call a mortgage loan company today.

Whether you are planning to purchase your first home, or you have purchased before and it’s time to move to a new home, it’s important to understand the different types of mortgage loans available. One of the most important things about your new loan (that will play a key role in your total monthly payments) is the interest rate. You may have heard about “fixed rate” or “adjustable rate” mortgages, which both offer advantages and disadvantages, but if you’re not sure what the difference is between the two, read on to find out.

Fixed Rate Mortgage

When you have a fixed rate mortgage, the interest rate on your loan will never change as long as you have the loan. It is set from the time that you sign the papers to close on your new home, and doesn’t fluctuate regardless of what happens with market interest rates. This type of loan is advantageous because you know your rates and payments will remain constant, and having this kind of stable payment helps you budget and plan better. They are also straightforward and easy to understand so you don’t get any surprises.

The disadvantage is that if interest rates do go down and you want to take advantage of it with a lower payment you will need to refinance, which can mean additional closing costs and paperwork. The initial interest will also be higher (and thus your monthly payments higher) than an adjustable rate would be, so it can be expensive for some homebuyers who might be able to afford higher payments later but cannot do it from the outset of the loan.

Adjustable Rate Mortgages (ARM)

Adjustable rate loans, also called ARMs, generally start at a lower interest rate for a set period of time, then can fluctuate up or down depending on the market. The interest rate of your loan is tied to a broad measure of interest rates (called an “index”), and when that index goes up, so does your payment amount. In some cases your payment might also go down with the index, but not in all cases so it’s important to understand the terms of your loan in advance.

The advantage of this type of loan is that the interest rate often begins very low, which can make it an affordable option for many homeowners. These lower payments can also help you qualify for a better home when you initially take out the loan. If your loan is structured to allow for the interest rates to go down with the index, you can take advantage of falling rates without the added closing costs. Plus they offer a lower-cost option for homeowners who are not planning to stay in a specific home for long.

The opportunity to see your payments go down with interest rates also means that they could go up with rising rates. Some ARMs have limits on how high your rate can go, and how often it can be adjusted, but there are cases where you might see the interest rate double or more over the life of the loan. Higher interest rates mean higher house payments, so it’s important to figure out how high the rates could go and still allow you to make your monthly mortgage payments. Finally, since there are many intricacies to these loans, a novice homebuyer could get confused or even trapped by an unscrupulous mortgage company.

It’s important for homeowners to understand all the parts of these two types of loans so you can choose the one that makes the most financial sense for you. Talk to a mortgage loan office today to find out more.