North Country

Mortgages

The modern mortgage market offers a variety of mortgage loans catering to the needs of home

buyers. The titles and details of these plans can become confusing, especially as new types are

introduced continuously. You can make sense of these loan types, however, if you understand the

basic principles that govern all mortgage loans. Again, you can look to your real estate professional

for assistance.

Basic Principles of all Mortgage Loans

The home is used as security to back up the loan. A lender can force sale of the home if the borrower defaults by failing to make scheduled payments. The larger the loan compared to the value of the home, the more risky for the lender and, often, the more expensive the loan will be. Interest earned by the lender always is equal to the periodic interest rate times the outstanding principle balance of the loan. The periodic interest rate is the annual interest rate divided by the number of payments in the year (usually one per month). The required payment usually is a bit larger than the interest due so that some of the loan principal is repaid with each payment. This process is called Amortization and is why most mortgage loans can be retired when all the monthly payments have been made.

All mortgage loans have one of the following features:

Fixed payment and fixed interest rate - fixed rate mortgages Fixed rate but variable payment - graduated payment mortgages Variable rate and variable payment - adjustable rate mortgages As you learn more about the types of financing available, you will notice that some loans appear to have more favorable terms. That may indicate that those loans are, indeed, bargains (and it does pay to shop around), but usually it means that those loans could have some feature that is less appealing to borrowers. For example, shorter-term loans often have slightly lower interest rates compared to longer-term loans. However, the monthly payment for the same amount of principal may be higher because of the shorter term. Variable rate loans usually have much lower interest rates to compensate for the risk the borrower accepts that interest rates will rise in the future.
(906) 875-6331 (906) 265-6133
© 2016 RE/MAX North Country, Crystal Falls, MI (906) 875-6331 and Iron River, MI (906) 265-6133 Equal Housing Opportunity.  Each RE/MAX® Office is Independently Owned and Operated. RE/MAX of Michigan agents are licensed in the state of Michigan. Website created by North Country Website Design
North Country

Mortgages

The modern mortgage market offers a

variety of mortgage loans catering to

the needs of home buyers. The titles

and details of these plans can become

confusing, especially as new types are

introduced continuously. You can make

sense of these loan types, however, if

you understand the basic principles that

govern all mortgage loans. Again, you

can look to your real estate professional

for assistance.

Basic Principles of all Mortgage Loans

The home is used as security to back up the loan. A lender can force sale of the home if the borrower defaults by failing to make scheduled payments. The larger the loan compared to the value of the home, the more risky for the lender and, often, the more expensive the loan will be. Interest earned by the lender always is equal to the periodic interest rate times the outstanding principle balance of the loan. The periodic interest rate is the annual interest rate divided by the number of payments in the year (usually one per month). The required payment usually is a bit larger than the interest due so that some of the loan principal is repaid with each payment. This process is called Amortization and is why most mortgage loans can be retired when all the monthly payments have been made.

All mortgage loans have one of the

following features:

Fixed payment and fixed interest rate - fixed rate mortgages Fixed rate but variable payment - graduated payment mortgages Variable rate and variable payment - adjustable rate mortgages As you learn more about the types of financing available, you will notice that some loans appear to have more favorable terms. That may indicate that those loans are, indeed, bargains (and it does pay to shop around), but usually it means that those loans could have some feature that is less appealing to borrowers. For example, shorter- term loans often have slightly lower interest rates compared to longer-term loans. However, the monthly payment for the same amount of principal may be higher because of the shorter term. Variable rate loans usually have much lower interest rates to compensate for the risk the borrower accepts that interest rates will rise in the future.
© 2017 RE/MAX North Country, Crystal Falls & Iron River, MI (906) 875-6331  (906) 265-6133  Equal Housing Opportunity. Each RE/MAX® Office is Independently Owned and Operated. RE/MAX of Michigan agents are licensed in the state of Michigan. Website created by North Country Website Design
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