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If you're a first time homebuyer, the last thing you need is
a smoke and mirrors approach to home loans. At Accesable
Mortgage, we understand that clear, simple answers are
required. Although each customized home financing
package has its own variety of features, the concept of
a mortgage is really quite simple: a mortgage is a loan
made to help you finance a home. Your lender advances
you a certain amount of money, which you repay over a
specified period.
Rates, Points & Loan Fees
The total cost of your mortgage is determined by a
number of different factors, most notably the interest
rate, discount points, and loan fees. The expenses that
contribute to the cost of your loan can be expressed as
the annual percentage rate (APR).
Interest Rate refers to the percentage of your
outstanding loan balance that you pay the lender each
month as part of the cost of borrowing money. Your
interest rate will be based on the current overall rate
environment, as well as your financial profile and the
specific features of your loan.
Discount Points allow you to "buy down" your interest
rate at closing. One point equals 1% of your loan
amount, and the more points you pay, the lower your
interest rate will be, and the less you will have to pay
each month. How much your rate will decrease with each
discount point you pay will depend on the specific
features of your loan.
Loan Fees are up-front charges to cover the cost of
originating, processing, and closing your loan, among
other things. An origination point is a loan fee that
equals 1% of your loan amount.
Your Monthly Mortgage Payment
Mortgage payments can generally be divided into four
parts: principal, interest, taxes, and insurance. These
are often referred to with the acronym PITI.
Principal refers to the amount of money you borrow to
buy a home, and to the outstanding loan balance at any
point during the mortgage term.
Interest is the cost of borrowing money. As noted above,
the amount of interest you pay each month is determined
by your interest rate.
Taxes assessed by your local government will likely be
collected by your lender as part of your monthly
payments, and then paid annually or semi-annually on
your behalf. This process is known as an escrow.
Insurance, like property taxes, is normally collected by
the lender in an escrow account. Insurance offers
financial protection, and has two major components:
Homeowner's insurance, also called hazard insurance,
protects you against damage to your property caused by
fire, wind, or other hazards.
Mortgage insurance protects your lender in the event
that you fail to repay your loan mortgage. Whether you
must pay mortgage insurance usually depends on the loan
program and the size of your down payment.
If you are new in the market for a new home, and not
sure how much you can afford, let us
analyze your needs
based upon current financing rates in the Ohio metro
area.
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