Solving The Mortgage Mystery
Mortgages are a mystery to many people. The very word strikes fear into some people. 'Dead Pledge', is what it translates into from the Old French, meaning the pledge dies when the obligation is fulfilled or when the property is taken back through foreclosure. Mortgages allow you to buy property without having to come up with the full amount for the purchase, making arrangements to repay over time.
A mortgage lender makes a loan based on the value of the real estate and the borrowers' ability to repay. This is like telling your brother you will give him $5000 to by a new car, but you get to hold lien on the title until he pays you back. In real estate, the borrower holds title to the property, but the lender has claim on it until the mortgage is satisfied.
Normally mortgages have interest attached to their repayment. This is how the lender makes money on their investment in the mortgage loan. Mortgages are usually considered a safe investment, if they are currently being paid on time. When the borrower misses payments, the mortgage starts being an unsafe investment because it ties up the money that was securing it until it is brought current, or the back payments are made. Sometimes the lender has to foreclose a mortgage. This means they go through a process to gain title to the property which they have right to do because the debt was not satisfied. As a mortgage is paid, part of the payment will go to interest and part will go to principal. Principal is the amount of money left owing on the loan.
Mortgages are usually spread out over 30 years of payments, with the bulk of interest being paid at the beginning of the loan and the bulk of the principal being paid at the end. So, if you bought a house in say, Salt Lake City, five years ago for $200,000, and got a loan with Zero down and 4.5% interest only payments for the first 5 years, you would have paid $750 for those 5 years, but then your payments would have risen to $1111 for principal and interest and then $1371 for the average payment of taxes, insurance, principal and interest.
Its important to understand how mortgages work so you are not left in the dark when seeking to buy a home. I recommend additional study about how credit works and which type of mortgage best suits your needs. Making an informed mortgage decision will empower you to be confident when dealing with the most important thing in your life, your home.
by: Art Gib
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