A mortgage is a loan used to purchase real estate. Under the terms of a mortgage, the real estate is used as collateral for the loan. Most residential mortgages are set for payment durations of 15, 20 or 30 years, although you can sometimes find 40 year mortgages. Mortgage rates can be fixed for the period of the loan, or adjust a set periods, with the adjustments tied to financial indicators such as the prime rate or treasury bill rates. The mortgage rate you get will depend on your credit score and history, the particular standards of the financing agency and the characteristics of the property being financed.
Mortgages and Interest Rates Explained
While this video was made at a time of historically low interest rates. the explanation of interest rates, points, and cost over the term of the loan is timeless-- and easy to understand.
Mortgage Payment Components
There are 5 general components that make up payments on a mortgage, although only the principal and interest affect the loan balance.http://www.investopedia.com/ask/answer/07/mortgagepayments.asp
Principal: The amount of money that has been borrowed and not repaid to the lender.
Interest: The charge or rate of increase that is added to the principle. These rates change daily and are negotiable.
Taxes: Property taxes can either be added to the principle of a mortgage or can be paid independently.
Property and Life Insurance: Similar to taxes, property and life insurance can be included in your mortgage payment.
Mortgage Insurance: Sometimes referred to as PMI or MIP this insurance protects the lender in the event of death, foreclosure, or in the event that an unconventional mortgage is negotiated. If you make a large enough down payment, insurance may not be required.
Underwater Mortgages
In many communities, housing values have fell dramatically in 2009. If a homeowner has borrowed more than their house is now worth, their mortgage is said to be "under water" as there is no longer enough collateral in the home to secure the loan.
2008 Mortgage Crisis
On Friday, July 11, 2008, the second largest bank failure in U.S. history took place as federal regulators took over the IndyMac Bank.CNNMoney.com: Bank Regulators close IndyMac (July 11, 2008) The bank closed its doors three hours early on Friday and re-opened on Monday under federal control and a new name. In addition, the Federal Reserve opened up more credit for two other failing lending institutions: Freddie Mac and Fannie Mae. Together, these organizations either funded or guaranteed over half of all mortgages in America. The New York Times: Making Sense of the Fannie and Freddie Stock Slide (July 11, 2008)
Morgage Advice
From CBS: "Now is the time to buy a home, but you will need better credit than ever to get a mortgage. Financial Correspondent Vera Gibbons explains what you can do to Harry Smith."
What Happes If I Miss A Mortgage Payment?
Ehowfinance explains what happens when a mortgage payment is missed and mentions that the most important thing you can do is to get in touch with your bank or lender as soon as possible.
References
Fast Facts
-
Fact:
Mortgages can be used for residential and business purchases
-
Fact:
Mortgages can be used for original purchases, or can be used to refinance existing properties
-
Fact:
Many mortgages are sold on the secondary market, so the bank or company that issues your mortgage may not service it
-
Fact:
Most secondary market loans need to be FHA insured, so most mortgages issed need to be in compliance with FHA guidelines which vary by state
