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| Kelstar Financial of Alaska, Inc. |
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| Proudly Supporting Our Military Troops And Veterans |
| "As a former member of the Armed Forces, I know first hand the needs of our Military and Veterans." ~Cris Skinner~ |
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| What is a Mortgage? According to Webster's, a mortgage is "the pladging of property to a creditor as security for the payment of a debt." In plain terms, it is the legal contract that says if you don't pay the loan back (along with all of the fees and interest that are included with it), then the lender can have your house. The lender holds the title to your house until the debt is paid completely off, and the lender will sell your house in order to get the money back if you can't make your mortgage payment. The Down Payment Your down payment is the lump of sum you pay up front that reduces the amount of money you have to finance. You can put as much down as you want, or you can sometimes pay as little as zero percent of the purchase price. The more money you put down, though, the less you have to finance and the lower your monthly payment will be. The mortgage payment - The mortgage payment is made up of : * Principal - This is the total amount of money you are borrowing from the lender (after you've made your down payment). It is the amount of money you are financing. * Interest - This is the money the lender charges you for the loan. It is a percentage of the total amount of money you are borrowing. * Taxes - Money to pay your property taxes is often put into an escrow account, meaning that the money is placed in the hands of a third party until it is time to pay or certain conditions are met. A portion of your property tax is added to your monthly mortgage payment and held in escrow until it is due. * Insurance - There are several types of insurance that can come into play when you get a mortgage. You'll have hazard insurance to protect against your losses from fire, storms, theft, etc., and if your home is in a flood risk zone and you're getting a federally insured loan, you'll have to get flood insurance. Unless you have at least 20 percent equity in your home, you'll also have to pay private equity insurance (PMI). This can sometimes be pretty expensive, so it makes sense to as much into your down payment as you can. (Equity is the portion of your home's value that you have already paid for.) There are ways to avoid mortgage insurance with special financing. These pieces of your mortgage payment re reffered to as PITI. There are also closing costs that you will have to pay. Paying it off Mortgages are typically paid off in the incremental payments that gradually chip away at the principal of the loan. This is called amortization. The portion of your payment that goes to pay the interest is much higher than the portion that goes to the principal -- at least for the first several years. Types of Mortgages: Fixed-rate mortgage - This mortgage offers an interest rate that will never change over an entire life of the loan. If you lock in a rate of 7 percent that calculates a payment of $1,247 per month, then you know that in 20 years you'll still be paying $1,247 per month. The only things that will change will be the property tax and any insurance payments that are included in your monthly payment. The length (known as the term) of your fixed rate mortgage can be 15, 20, or 30 years. These terms have an effect on the various benefits you'll get from your mortgage. Adjustable-rate mortgage (ARM) - An adjustable-rate mortgage has an interest rate that changes based on changing market rates and economic trends. They usually offer an initial interest rate that is two to three percentage points lower than fixed-rate mortgages, but they don't offer the stability or assurance of a known mortgage payment in the years to come. If you don't expect to be in your home for many years, however, an ARM may be just what you need. Balloon mortgage - A balloon mortgage offers an initial interest rate that is lower than fixed-rate mortgages. It keeps this low fixed rate for five to seven years and then requires a "balloon" payment. The balloon payment is the final payment of the loan and pays off the entire balance. Monthly payments are low because the payments for those first five to seven years are amortized at a low interest rate over the total length of the loan. If you plan on either selling your home, paying it off, or refinancing if before the balloon payment is due, then this type of mortgage is a good deal. Government loans - Government housing loans help lower the costs of mortgages so that more people can afford to own their own home. There are three government agencies that insure mortgages. The Federal Housing Administrations (FHA), which is part of the U.S. Department of Housing and Urban Developement, the Veterans Administration (VA), and the Rural Housing Service (RHS), which is a branch of the U.S. Department of Agriculture. Only approved lenders can offer these loans, and there will be required standards that the property has to meet in order to qualify. |
| Mortgage "101" |