BORROWING MONEY
BASICS
This is a review of financing basics
with respect to buying property.
In
order to buy property, you must first obtain a mortgage through
a lending institution. A mortgage if defined as a temporary, conditional pledge
of property to a creditor as security for performance of an obligation or repayment
of a debt. Consumers elect to pay mortgages over long periods of time since
it is a large sum of money. These time frames generally range form 15 to 30
years. At first, their monthly payments very slowly erode the principal balance
whereas towards the end of the loan, the payment pays off the principal in a
rapid manner.
After the loan is approved for financing, it is then placed in escrow. This signifies money, property, deed or a bond which is put into the custody of a third party for delivery to a grantee only after the fulfillment of the conditions specified.
A monthly mortgage payment called a PITI is then generated which covers a portion of the following four costs:
Principal
Loan balance
Interest -- interest
owed on the balance
Real Estate
Taxes -- assessed by various government agencies to pay for school construction,
fire department service, et al..
Property Insurance -- insurance coverage against theft, fire, hurricanes and
other disasters
The breakdown of each payment changes over time because mortgages are based
on a repayment formula called amortization. This process is a reduction of the
value of an asset by prorating its cost over a period of years so that the overall
loan is as affordable as possible.
Fixed Rate Mortgage
In today’s economy, the mortgage market is now very diverse. Fixed-rate
mortgages are the most common mortgages offered by lenders. These loans generally
span over a period of 15-30-year periods. This is the preferred method since
consumers flinch at the payment rising and falling with interest rates. When
rates are low, this type of mortgage is very affordable. The prevailing choice
Fixed-rate loan borrower’s face is whether they want to finance for 15
or 30 years.
Adjustable Rate Mortgage
Now we will review the adjustable-rate mortgage (ARM). Conversely to the fixed
rate, the interest rate and monthly payment move up and down as market interest
rates vary irregularly. Most ARMs initially have a fixed-rate period wherein
the borrower's rate doesn't change. Subsequently, there is a longer period during
which the rate changes at preset intervals.
ARM rates charged during the initial periods are generally lower than the rates
found on comparable fixed-rate mortgages and can range from a month to 10 years.
Lenders provide this rate because borrowers are willing to risk higher rates
in the future.
Other types of mortgages
If the Fixed or Variable rate is not for you, keep in mind there are other types
of mortgages and ways to finance property which include:
• Jumbo mortgages
• Assumable mortgages
• Two-step mortgages • Subprime mortgages
• Biweekly mortgages • Construction mortgages
• Balloon mortgages • Seller financing
In the end, there is an exorbitant amount of information to relay to you about
borrowing money to buy property. I am here to help you. Please contact me if
you would like more of the following FREE detailed information listed below:
Pros and cons of the 15 or 30 year mortgage
To learn more about how home financing can help you get your special dream home, complete the form below:
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Cadway's
Home Buying & Selling System
6125 Caminito Sacate, San Diego, CA 92120
619-265-9191
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Unique Dynamics, Inc.
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