Have a plan….. it’s key.

Most people have a 30 year mortgage. There are other time frames to choose from, depending on the lender, such as a 15 year or 20 year.  The interest rate on these is a slightly less percentage point, but unless the monthly payment figure for them is within your budget, stick with the 30 year mortgage. The length of the loan can be changed down the road, as your budget allows, but don’t bite off more than you can chew now.  There is another way to do this yourself, and it will be explained at a later date.

The figure you pay each month is figured out by your lender. They take into account your credit history (credit score), down payment, and your income to debt ratio. Then, the difference between your down payment and the cost of the home is your mortgage (Principal and Interest), added onto that is Escrow (your Real Estate Taxes and Homeowners Insurance)…. these figures they get from your insurance company and the City where your home is located.

The escrow is held by the lender in a separate account, and when the taxes and insurance are due, they pay the bill from your escrow account.  These 4 things are also known as PITI… (principal, interest, taxes and insurance).  The figure for principal and interest remain the same throughout the length of the mortgage loan, but the taxes and insurance figure can fluctuate some each year, which is the only reason your full mortgage payment may change.

An easy way to avoid missing a payment is to set up a separate auto-deposit mortgage account, rounding up the figure is a good idea. Have the mortgage automatically withdrawn by the lender when each payment is due.  Just remember to have a bit extra in the account so if your pay day or holidays overlap when the payment is due, there is still enough in the account to pay the entire bill.  A good rule of thumb is to leave the equivalent of an extra payment in the account as a cushion to begin with.

Usually, once a year, the lender will notify you if any changes, either more or less, is required for your real estate taxes or insurance. They will then update your mortgage account and that would be the new figure until and unless the insurance or taxes change the following year.

As you pay down your mortgage loan, what you pay towards your principal, is called your Equity.  When you sell the home, what is in the Equity account is yours (along with any gain on the sale of the home), but any outstanding debt on the loan is due at closing to the lender.  They’ll figure all this out.

This is why people prefer buying a home as opposed to renting…..   Renting you pay a rent and it is completely gone… to the owner of the home.  When you buy, then sell, you have your equity in your hand to use for a down payment on your next home.

The hard part is to save the 20% plus…..  so start saving!