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| Mortgage 101 Let's start with the basics. What is a mortgage? A mortgage is nothing more than a loan that you obtain to close the gap between the cash you have for a down payment and the purchase price of the home that you're buying. Homes in your area may cost $70,000, $170,000, or $770,000. No matter – most people don't have that kind of spare cash. Mortgages typically require monthly payments to repay your debt. The mortgage payments are comprised of interest, which is what the lender charges for use of the money you borrowed, and principal, which is repayment of the original amount borrowed. Learning how to select a mortgage to meet your needs ensures that you'll be a happy homeowner for years to come. You also need to understand how to get a good deal when shopping around for a mortgage because your mortgage is typically the biggest monthly expense of home ownership (and perhaps of your entire household budget). Paying more in total interest charges over the life of your mortgage than you originally paid for your humble abode itself is not unusual. Suppose that you borrow $144,000 (and contribute $36,000 from your savings as the down payment) for the purchase of your $180,000 dream palace. If you borrow that $144,000 with a 30-year fixed-rate mortgage at 7 percent, you end up paying a whopping $200,892 in interest charges alone over the life of your loan. That $200,892 is not only a great deal of interest – it's also more than the purchase price of the home or the loan amount you originally borrowed! So that you don't spend any more than you need to on your mortgage, and so that you get the mortgage that best meets your needs, the time has come to get on with the task of understanding the mortgage options out there. |
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