When it comes to financing or refinancing your home, it’s important you understand the process and all your options to get the right mortgage for you.
In determining which mortgage best suits your situation, there are some basic decisions you’ll need to make:
Type of Mortgage
- Conventional mortgage
This is the most common type of mortgage. Your lender will loan you up to 80% of the purchase price of the property or its appraised value (whichever is lower), and you have yourself the other 20% as a down payment.
- High ratio mortgage
If you don’t have at least a 20% down payment needed to get a conventional mortgage, a high ratio mortgage can advance you up to 95% of the home’s purchase price or appraised value. However, you’d be required to purchase mortgage insurance (not to be confused with home insurance), the amount of which would be added to your mortgage principal.
Your mortgage is made up of 2 components: principal and interest. Essentially, interest is the cost of borrowing money.
You agree on an interest rate with your lender and this rate gets locked in for the term of the mortgage. A fixed-rate mortgage is great in an economy where the bank’s prime rate is increasing, but undesirable if the going rate is decreasing.
Your interest rates fluctuate with the Bank’s prime interest rate. Your monthly mortgage payment amount stays the same. However, if the prime rate falls, more of your payment goes towards the principal and less goes towards the interest. If the interest rate rises, less of your payment goes towards the principal and more goes towards the interest.
Term and Amortization
A mortgage term is the amount of time a lender will loan you money for – typically from 6 months to 5 years. When the term is up, the remaining amount is payable in full unless you arrange new financing for another term.
Because few of us can pay off an entire mortgage in even a 5-year term, lenders calculate – or amortize – the mortgage payments over a much longer time, often as long as 30 years. They aren’t loaning you the money for a 30-year period; they’re simply calculating the payment schedule as if it would take you that long to pay back your mortgage. You will likely renew the mortgage at the end of your term within your amortization period.
Now is it necessary to be fluent in the world of mortgages? Absolutely not! That’s my realm.
Mortgages come with a plethora of jargon, math, and paperwork that can be overwhelming to most people.
I provide clarity in areas of confusion to make the process easy and stress-free.
Trust in someone who intimately knows the market. I’ll help explore your options to ensure you’re getting the perfect mortgage solution for you.
Call me to get a quick and easy mortgage that fits your needs: 917-709-8992
Happily anticipating your call,
PS – Did you know that mortgages don’t always come from major banks?
If you find yourself in a situation where you’re struggling to get approval from a bank, look out for my next email about alternative loan sources. You may be closer to getting your next home than you thought!