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Buying your next home? You’ve already been through the dog and pony show of buying a home, but sometimes it makes sense to move to another home. Your situation can evolve and change over time. Financial goals can change, careers develop and priorities alter. When these things happen, you might need to consider buying a home that makes more sense for your new situation.
Basics of Home Mortgage Loans
Even if you’ve already been through the home buying process, if you’re thinking of buying your next home it helps to understand the basics of home mortgage loans. In addition to your loan amount, term and interest rate, the amount you end up repaying is based on several things. Here are the critical mortgage factors you should understand:
1. Interest Rate – the interest rate is the percentage of the loan amount that is you are charged for borrowing money to buy your home. Interest rates are determined by your credit score, down payment, market conditions, and the kind of mortgage you select.
2. Discount Points – One point is the equivalent of 1% of the mortgage amount. You may be able to pay one or more points to lower the interest rate provided you qualify. Naturally, a lower interest rate translates into lower monthly payments, so it might be worth it for you to pay points to reduce your interest rate.
3. Origination Charge – This is the amount that includes all charges, besides discount points, that lenders and brokers will receive for originating the loan. Items like fees, underwriting costs, document preparation and other expenses are included in origination charges.
4. Loan Term – This is the length of time you are given to pay off your mortgage. Shorter term loans mean higher monthly payments. However, it usually means the interest rate will be lower.
5. PITI – Principal, Interest, Taxes, and Insurance – Your mortgage payment is usually made up of these four parts. Principal is the amount you borrowed. Interest is what you have been charged to borrow the money. Taxes are the property taxes charged by your city. Insurance is the homeowners insurance you need to protect yourself and your lender against loss from fire and other hazards.
6. APR – The interest rate is only part of the mortgage picture. The overall cost of a mortgage involves not only the interest rate, but also the discount points and origination charges. This overall cost is called the Annual Percentage Rate (APR), which is usually larger than the interest rate. The APR lets you compare mortgage loans of the same amount by evaluating their total annual cost.
There have never been more options for home owners to buy their next home. Rates and inventories are at all-time lows.
Have questions about buying your next home? Talk to one of our mortgage loan professionals today.