Rarely are people able to actually pay cash for their home. It's a wonderful idea, but most of us have to get a loan and make monthly mortgage payments. If you are ready to dive into the real estate market for the first time, here are some helpful facts concerning mortgages that might be of interest to you.
In general, your monthly mortgage payment, while it all goes to the same place, is split into two categories - interest and principal. The portion of your mortgage that is the principal is the part that actually is paying down your loan, while the rest is the interest you are paying the bank. So if you owe $100,000 on your house and your monthly payment is $1,000, some of that will be deducted from the $100,000 and the rest will simply go straight to the bank as a payment of interest.
When you are shopping around for a house loan, be aware that there are quite a few different types of mortgages, and you need to select the type that works best for your situation. A fixed mortgage is one very common option, and usually people opt for a 30-year fixed, although 15-year fixed-rate mortgages also are an option and sometimes 10- or 20-year mortgages, although those are rare. This simply means is that your rate of interest will never change and you will pay off the home in 30 or 15 years. Obviously 15-year loans seem like a great idea because you will own your home more quickly, but your payment will be substantially higher because you are paying more toward the principal each month. Many people just cannot handle this high monthly payment, so they opt for a more manageable 30-year loan.
There also are variable rate loans. This means the rate of interest you pay can vary from year to year. The most common variable rate loan is called a 5/1 ARM. This means for the first five years of the mortgage, the rate is fixed. After that it adjusts every year. The advantage of a 5/1 ARM is that generally the initial rate is lower than the rate for a 30-year fixed loan, which means your monthly payment will be lower. If you sell the house or refinance the loan into a fixed-rate mortgage before the arm adjusts and potentially goes much higher, this can be a great deal. Otherwise, you risk having your mortgage cost go up and up and up every year, which certainly can happen and this can mean you spend hundreds of extra dollars each month.
While you probably know that you will need a down payment for your home, there are plenty of other costs that you need to think about when creating a home buying budget. For instance, you will have to pay fees to the lender just to get a loan in the first place. You will have to pay hundreds of dollars for home inspections, title insurance, a home appraisal and a few other items. Usually the seller pays the commissions to the realtors which makes life easier for the buyer, but sometimes you also can negotiate a few of the other expenses into the deal to lower your upfront costs. You also might be able to include some of the costs in your mortgage loan, but not always.
While it all might seem overwhelming, if you have a great realtor the whole process can be much easier. Your real estate agent can explain much of the escrow process and help you understand the various costs and fees. For people wishing to buy Texas Hill Country real estate, Fredericksburg real estate or Kerrville real estate, consider contacting the team at Nixon Real Estate. They specialize in find homes for sale in Texas Hill Country and have more than 30 years of experience.
In general, your monthly mortgage payment, while it all goes to the same place, is split into two categories - interest and principal. The portion of your mortgage that is the principal is the part that actually is paying down your loan, while the rest is the interest you are paying the bank. So if you owe $100,000 on your house and your monthly payment is $1,000, some of that will be deducted from the $100,000 and the rest will simply go straight to the bank as a payment of interest.
When you are shopping around for a house loan, be aware that there are quite a few different types of mortgages, and you need to select the type that works best for your situation. A fixed mortgage is one very common option, and usually people opt for a 30-year fixed, although 15-year fixed-rate mortgages also are an option and sometimes 10- or 20-year mortgages, although those are rare. This simply means is that your rate of interest will never change and you will pay off the home in 30 or 15 years. Obviously 15-year loans seem like a great idea because you will own your home more quickly, but your payment will be substantially higher because you are paying more toward the principal each month. Many people just cannot handle this high monthly payment, so they opt for a more manageable 30-year loan.
There also are variable rate loans. This means the rate of interest you pay can vary from year to year. The most common variable rate loan is called a 5/1 ARM. This means for the first five years of the mortgage, the rate is fixed. After that it adjusts every year. The advantage of a 5/1 ARM is that generally the initial rate is lower than the rate for a 30-year fixed loan, which means your monthly payment will be lower. If you sell the house or refinance the loan into a fixed-rate mortgage before the arm adjusts and potentially goes much higher, this can be a great deal. Otherwise, you risk having your mortgage cost go up and up and up every year, which certainly can happen and this can mean you spend hundreds of extra dollars each month.
While you probably know that you will need a down payment for your home, there are plenty of other costs that you need to think about when creating a home buying budget. For instance, you will have to pay fees to the lender just to get a loan in the first place. You will have to pay hundreds of dollars for home inspections, title insurance, a home appraisal and a few other items. Usually the seller pays the commissions to the realtors which makes life easier for the buyer, but sometimes you also can negotiate a few of the other expenses into the deal to lower your upfront costs. You also might be able to include some of the costs in your mortgage loan, but not always.
While it all might seem overwhelming, if you have a great realtor the whole process can be much easier. Your real estate agent can explain much of the escrow process and help you understand the various costs and fees. For people wishing to buy Texas Hill Country real estate, Fredericksburg real estate or Kerrville real estate, consider contacting the team at Nixon Real Estate. They specialize in find homes for sale in Texas Hill Country and have more than 30 years of experience.
About the Author:
Pammy McGrath loves reading real estate blogs. If you are searching for licensed Fredericksburg TX real estate agents, or to find Fredericksburg Texas homes for sale, please visit the NixonRealEstate.com website today.
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