The Life of a Mortgage Summit County Colorado Real Estate Guide

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The Life of a Mortgage

The Life of a Mortgage:

Simply put, a mortgage is a loan from a financial institution that you pay back over a time period of 20 to 30 years. The prefix “mort” comes from the French word “dead”. The idea is to "kill off" the loan by paying back the money you borrowed.

A loan has three factors:
1. Size (how many dollars you need to borrow)
2. Interest (the percentage rate you pay on the loan)
3. Term (how long it will take to pay off the loan)

Size:

Size is determined based on a calculation of varies factors such as down payment, monthly income, and expenditures. A mortgage professional can help you to determine the exact dollar amount you need to borrow and can qualify for.

Calculation of an Annual Percentage rate:

1. Loan Discount Points - (1% of the loan amount)
2. Orientation points – (fees charged by the lender)
3. Discount Points – (these lower interest and payments so that you pay more up front and less over time)

Example of Discount Points:

You take out a loan for $120,000 and have a 9% interest for 30 years. You also have one orientation and one discount point so you will need $2,400 at time of closing and will have a monthly payment of about $965.55. To get the proper APR you will need to add the interest $2,400 to the loan amount and calculate the APR. This will make the payment about $984 and the interest rate would be about 9.23%.

The Term

Most loans are 15 year or 30 year loans and the length of time benefits to both long and short term loans. You will end up paying much more over the longer term of the loan (30yr) but will have lower monthly payments and get a tax write off for the interest of the loan. However, with a 15 year loan you will be building equity much faster and end up paying less interest in the long run. Rule of thumb: If you can afford the higher monthly payments it is in your best interest to have a shorter term loan.

The Life of a Mortgage - Summit County, Colorado

Colorado Real Estate - The Life of a Mortgage

The Life of a Mortgage Summit County Colorado Real Estate Guide

The Life of a Mortgage

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