A mortgage is a loan that you use to buy or build a home. It is also a debt that you pay back over time, typically with monthly payments. The interest rate you pay is determined by both the market and your personal circumstances, such as your credit score, income and assets.
Whether youre a first-time homebuyer or an experienced homeowner, understanding your mortgage can help you make smart financial decisions. Taking the time to learn about your mortgage before you sign on the dotted line can save you money in the long run.
There are many different types of mortgages and the terms and conditions that accompany them. They range from government-backed loans to jumbo mortgages and non-conforming loans. Each has its own requirements, benefits and interest rates.
The basic components of a mortgage include the loan amount, interest, taxes and insurance. A mortgage calculator can help you estimate your monthly mortgage payment by combining these factors with the average interest rate that a lender offers.
Loan amount – the total amount of the loan you borrow, including your down payment and any other costs, like closing fees. The loan amount you choose should correlate with your ability to pay off the mortgage in a timely manner.
Interest – the percentage of the principal that you borrow each month, which is calculated by multiplying your loan balance by the annual interest rate. This number is a good indicator of how long it will take you to pay off your mortgage and how much youll end up paying in interest over the life of the loan.
Mortgage calculators can also help you determine how much your monthly payments will be over the life of your loan, which is important for planning ahead. To see how much you will owe each year, enter your loan amount, interest rate and the term of your mortgage into the calculator and then click Calculate Mortgage Payments.
Taxes and Insurance – Your monthly mortgage payment may also include a portion of your property taxes and homeowners insurance. These expenses are typically collected by your lender, placed in an escrow account and paid for when they become due.
Foreclosure – In the event that you default on your mortgage, your lender has the right to repossess your home, which can cause considerable damage to the value of the property. A foreclosure can be a stressful and expensive experience, so its important to work with a mortgage lender who is honest and transparent about their terms.
Appraisal – Once youve submitted your application to a mortgage lender, they will send an appraiser to evaluate your home. This process helps them determine its value and makes sure youre not borrowing more than the home is worth.
The best way to determine your budget for a mortgage is to start with an honest look at your monthly income and other monthly payments, such as utilities, HOA fees, and insurance premiums. These expenses can vary depending on where you live, so its important to have a realistic picture of how much youre likely to spend on your mortgage and other monthly obligations before you make any moves.