Understanding Home Mortgage Loans

The price of houses keeps rising across the US. Since most require a down payment that is more than a renter can afford, how do you become a home owner when you don’t have the savings to cover the down payment? The answer is a home mortgage to purchase your house.

A home mortgage is different from a home loan. A mortgage is a contact that is required for you to obtain a loan from a banking institution or lending company. The actual loan is the money the lender provides.

In recent years, the types of mortgages for the home that are available to the public have increased dramatically. I remember purchasing my first home when most loans required a twenty percent down payment. Today, loan terms and the rate status are different with home mortgages and is applied depending on the financial situation at the time of the loan. Some mortgages offer better terms when the interest rates are low and others rise with high mortgage rates.

With a fixed rate mortgage, the interest rate remains the same for the duration of the loan. Therefore, your monthly payment remains the same, even when interest rates rise. This type of home mortgage usually extends for a term of 15 or 30 years.

The amortization period for 30-year fixed rate mortgages is longer and the monthly payments are lower. Although you can borrow money on a long-term basis, it comes with a high interest bill and builds equity very slowly.

With a 15-year fixed rate home mortgage, the amortization period is shorter allowing equity to build quickly with interest bills much lower. Expect to pay higher monthly payments with this type of home mortgage loan period.

Adjustable rate home mortgages have lower interest rates. Keep in mind, this low interest rate is only for a short time. Usually after the first year, the new interest rate will rise or fall, depending on the movement of the lending company’s prime rate.

If you’re considering an adjustable rate home mortgage, make sure the interest rate is low enough to be an advantage. Your monthly payment will remain low when the interest rate is low, but when interest rates rise, you may be left with a monthly payment you are unable or unwilling to pay.

Once you’re in the home of your desire, your property begins to accumulate equity with the rise in home prices. If you find yourself in need of quick cash, you can always take out the equity with a home equity loan. The home mortgage rates for home equity loans have always been thought to be higher than the home mortgage rates of other loan types. If you plan to stay in the home for many years, this may be a good option for you, otherwise don’t sacrifice the equity unless you absolutely must.

Once you understand the types of home mortgages that are available, you will need to decide what you must have in your new home and what you consider as an “extra.” You’ll want to find the best interest rate, but you’ll also find that homes in your price range may not include everything you want. So be prepared to negotiate and willing to sacrifice if you find a great deal. Once you’re in your home, you can always upgrade in a few years, using the equity you’ve built up in your property.

How to Figure a Mortgage Payment – A Quick and Easy Way to Calculate Payments in Your Head

There are several ways to calculate monthly mortgage PITI payments. PITI stands for Principal, Interest, Taxes (property taxes) and Insurance (home owner’s insurance).

o You could use a long, complex formula like: P = L[c(1 %2B c)n]/[(1 %2B c)n – 1] Does that sound fun to you? Me neither.

o You can use an on-line calculator. They are all different, though. Some are good, some are not. But if you are out house shopping and do not have internet access – not an option.

o You can even use a special, hand-held realtor calculator that will prompt you step by step to enter all the variables like: home price, down payment amount, interest rate, length of the loan, etc., then it will calculate the monthly mortgage PITI payment. However, these calculators are expensive, and unless you are a realtor, you will no longer need it once you find your home or refinance – not a cost-effective option.

You need a quick and easy way to figure your payment in your head, or maybe with the calculator in your cell phone.

Believe it or not, there is a way. It is very straightforward and will give you a ballpark estimate of your PITI payment.

Are you ready for this? It is super simple – just a one step multiplication problem. OK. Here it is. To estimate your monthly mortgage PITI payment multiply the amount of your loan by .008 . That’s it…seriously! (As long as mortgage interest rates don’t change drastically from what is available in Jan 09)

o If you are going to buy a $200,000 house, and you can pay $10,000 down, your loan amount will be about $190,000.

o The math looks like this: $190,000 x .008.

o Plug those numbers into your calculator.

o Your monthly mortgage PITI payment will be about $1520 per month.

Be advised, this figure is only an estimate – a simple way to get an estimate when you are not able to get to a computer. If you are in contact with a realtor or loan officer, they can give you a much more accurate idea of your monthly mortgage PITI payment.