Common Mortgage Questions

When shopping for a home mortgage, most buyers have plenty of mortgage questions. The following are a list of some of the most common mortgage questions along with brief answers to each.

What is the difference between principle and interest?

Principle is the amount you actually borrow on your loan. Interest is the fee the lender charges for borrowing. Your interest rate is stated as an annual interest rate – for example 6.5 percent annually. Although it is an annual interest rate, you are charged interest on a monthly basis. When you make your mortgage payment, a portion goes to paying interest and a portion goes to paying principle. During the first several years of a 30 year mortgage, most of your payments go towards interest. Mortgage interest is tax deductible in most cases

What does equity mean?

Equity is the interest that you, not the bank, owns in your home. Equity comes from down payments, rising property values and paying mortgage principle. If you borrow $100,000 on a $150,000 house, you have $50,000 in equity to start out with. As you make payments, you acquire more equity. If property values rise, you also acquire more equity. For example, if the value of your home rises to $175,000, you now have another $25,000 of equity in your home.

What are the types of mortgages?

There are many different mortgages, but the most common include:

• Fixed rate mortgages: You pay a fixed amount, with a fixed interest rate, for a given term. Fixed rate mortgages are commonly 15 or 30 years, although 40 year terms have become more common
• Adjustable rate mortgages: The interest rate on your mortgage adjusts periodically at stated intervals. The interest rate is usually tied to a financial interest, such as the LIBOR index, and the loan documents usually specify a 'cap' or a maximum interest rate. Your monthly payments can increase or decrease according to the current interest rate
• Hybrid mortgages: Hybrid mortgages are a mix of fixed rate and adjustable mortgages. Your interest rate is fixed- usually at a low promotional rate- for a set period and then becomes adjustable

How Do You Get a Mortgage Loan

You can apply for a mortgage loan through a bank, credit union, mortgage company or broker. You submit a loan application documenting your income, assets, credit score and other relevant information. The bank will approve you for a loan to buy a home based on this information. Many buyers get pre approved for a mortgage loan so they will know how much house they can afford to buy.

Where Can I Get Answers to More Mortgage Questions?

While these mortgage questions provide a very basic introduction, you may have many more mortgage questions that you need answered. Your local Department of Housing and Urban Development (HUD) or Federal Housing Administration Office (FHA) can provide you with a wealth of information and resources. In some areas, they also have counselors or classes for first time buyers to get their mortgage questions answered.