A mortgage is basically a long-term loan that you arrange through a bank
or other financial institution, or even through the seller of the property.
The house and/or property serve as collateral for the loan.
A home mortgage is most likely the largest debt you will assume. You
typically pay off that debt in monthly payments over a long period of
time, most often 15 to 30 years.
What's In a Payment?
A monthly mortgage payment typically includes the following, known as
PITI:
1. Principal
2. Interest
3. Real estate Taxes
Property Insurance and, often, private mortgage insurance, known as PMI.
PMI gives the lender protection if the homeowner should default on the
loan. The mortgage company charges insurance if the down payment is less
than 20 percent of the sale price or appraised value. PMI usually can
be eliminated once the principal balance of the mortgage reaches 80 percent
of the sale price or appraised value, which is known as the loan-to-value
(LTV) ratio.
The process of paying the principal takes years because mortgages are
based on a repayment plan called amortization. During the years of the
mortgage, a homeowner pays a lot of money toward interest in order to
have manageable monthly payments on the huge house debt. During the first
few years, most of the mortgage payments will be applied toward the interest.
During the final years of the loan, the payments will be applied primarily
to the remaining principal.
Example
Let's look at a $100,000 mortgage, at a fixed interest rate of 7.5 percent,
for 30 years. In three decades, the homeowner would pay $151,717 in interest.
Of course, you cannot put a price on the pleasure of living in your own
home and building equity, an unencumbered interest in your property. Equity
grows as you pay off the principal of the mortgage and as the property
appreciates in value. Also, there are tax incentives, since mortgage interest
is a deduction on your federal income tax.
Still, the amount of interest you will pay may affect your decision on
what type of mortgage you choose.
Click on the URL below to see the current interest rates in Arizona.
Sincerely your
Kim Irwin
Realtor
Yahoo.com
