Mortgage is like a loan to finance the purchase of your home. In this process home is collateral for the loan that you take. In this you have to sign a legal contract in which you have to agree that you will pay the debt with interest in a certain period of time. This time may be 15 to 35 years.
In case you fail to pay the debt lender has right to take over your property and sell it to recover the loan amount. You have to pay the debt on monthly installments. This monthly amount is calculated taking care of loan amount, interest rate, taxes, insurance amount etc and is collectively known as PITI.
Amortization:
Amortization is a process in which principal loans amount and interest comprise the bulk of your monthly payments, It reduces your debt over a fixed periods of time. Benefit of Amortization is that in early years you pay heavy interest and later that interest rate degrades slowly.
In addition to this principal and interest rate your monthly installments also consists of money need to pay taxes and insurance.
According to a general rule if your down payment is below 20 % of total cost then it is considered as riskier loan than those with large down payments. To offset that risk, the lender sets up the escrow account to collect those additional expenses, which are rolled into your monthly mortgage payment.
The taxes we are talking about are actually property taxes. This property tax is used to help finance the cost of running your community. You must pay your property tax even if you don't need an escrow account and even after your mortgage is paid off.
Insurance amount that you have to pay is home insurance which cover your home and your personal assets against any mis happening. Lenders won't et you close the deal on your home purchase if you don't have home insurance.
So this is all about Mortgage that you need to know about. We will deal in this matter further in much details.
Labels: mortage, mortgage terms