Utah Mortgage Help
If you’re new to buying a home and don’t have the time to read an encyclopedia on mortgages, this is the article for you. We’ll go over some basic mortgage terms and concepts to get you started.
Choosing to obtain a mortgage is an important and significant decision. It costs money both when the mortgage is obtained, and throughout the life of the loan in the form of interest. It also results in a large monthly expense. Therefore, the borrower should carefully choose where to purchase a loan as well as what type of loan program to choose.
You’ll want to understand some basic terms so that you can better compare mortgage options: rate, APR, closing costs, Mortgage, monthly payment, fixed, and ARM.
What is a mortgage? A mortgage is a loan that uses your home as collateral. This means the mortgage owner can take possession of your house if you default on the terms of your loan. Mortgages are used to pay off existing mortgages (this is called a refinance) or to purchase homes.
The rate is the percentage used to calculate how much interest you’ll pay on your mortgage. This is an important number because it determines your cost for borrowing money. When the interest rate on your loan always stays the same, the rate is called “fixed”. When the rate has the possibility of changing, then the loan is called an ARM or adjustable rate mortgage.
In addition to interest, there are additional costs to borrowing money for a home. These fees might include paying for the loan application, checking your credit history and scores, underwriting (seeing if you qualify for a specific loan program), title search and insurance, having the property’s value appraised, loan origination, etc. All together these fees are called “closing costs”.
Brokers and lenders can charge different amounts for these closing costs, which makes using the interest rate by itself an ineffective method of deciding where to buy a loan. Instead of comparing interest rates, you should compare what is known as the Annual Percentage Rate or APR, since it is calculated by adding the closing costs to the loan amount. It provides a more standardized number for comparing loans among lenders.
The total monthly payment, also known as PITI, is another important measurement to consider when choosing a loan. The PITI includes principal (P), interest (I), property taxes (T), hazard or homeowner’s insurance and mortgage insurance (the second “I”), and HOA dues. When mortgage insurance is taken into account, loans with a higher interest rate might actually have a lower monthly payment than loans with lower interest rates.
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