What you dont know about Mortgage Rates

December 9, 2010 No Comments »

If you’ve just purchased a home – perhaps for the first time – then congratulations.  But are you ready to start making monthly mortgage payments?  Read these tips to prepare you for this new financial responsibility.

What You Already Know

Mortgages are amortized.  They are paid off over time in installments.  The payment amount depends on a number of factors, such as your loan type and whether or not your lender has allowed any unique stipulations in your case.

What You Probably Didn’t Know

You’ll pay off mostly interest for the first few years. Most of your monthly payments won’t go toward paying off the loan itself.  They will be applied to the interest of the loan.  Don’t be surprised if the principal of your loan doesn’t decrease much during the first few years.  It may be the case that $10,000 in payments will decrease the principal of the loan by only $2,000.  This means the loan will take longer to pay off.

What You Already Know

There are many different loan types, and the loan type affects the interest rate you’re given.

What You Probably Didn’t Know

Different loan types come with different amortization schedules. An adjustable rate mortgage will accrue interest differently than a fixed rate mortgage.  In a 15 year mortgage, the interest will be weighted differently than in a 30 year mortgage.  Check with your lender to determine what your loan repayment scenario will look like.

What You Already Know

Mortgage payments are expensive.

What You Probably Didn’t Know

There are additional costs.  You may have to pay premiums for private mortgage insurance on a monthly basis if you’ve taken out an FHA mortgage or a loan with a minimal down payment.  You’ll also have to pay property taxes.  Property taxes are billed yearly, but many lenders will require you to place money into an escrow account monthly to pay off the property taxes at the end of the year.  Take these additional expenses into account.

Related: How much should you pay in closing costs?

Related Posts