Mortgage 101: What you need to Know about the Mortgage Process

By Tina Fountain - Atlanta Luxury Homes

How savvy are you when it comes to the mortgage process?  A mortgage is the largest, single investment most people will ever make.  Therefore, it is important to not just have a good understanding of the mortgage process, but to have an excellent understanding of the process, from beginning to end.

With that said, here are some must-know tips about the mortgage process:

• Your home is collateral.  When you take out a mortgage, you are essentially putting your home up as collateral. In other words, your inability to pay on the mortgage will likely result with the bank taking back your collateral – or your home – to recoup the debt. Expect to pay principal, interest, taxes, homeowners insurance and sometimes private mortgage insurance in your mortgage payment.
• Understand the principal.  The principal on your mortgage is the total amount of money you will borrow to purchase the home. Most banks now require a down payment before a mortgage can be acquired, which will go towards lowering the mortgage’s principal.
• Calculating interest.  The interest on the principal is typically calculated in a percentage and is what you pay to the lender for the luxury of borrowing the principal to purchase the home. However, interest may be just one factor to consider in this process, as some lenders will also charge points. One point is one percent of the financed amount and is factored into the financing of the mortgage. In other words, look at both the interest rate and the points when comparing loan rates.
• The dynamic of amortization.  Amortization is the process of creating a repayment plan. The early years of a mortgage will largely consist of interest and a small amount of principal, while the later years will consist largely of paying on the principal of the loan.
• Using escrow.  An escrow account is usually set up and included in your mortgage payment. An escrow account is money set aside by the lender each month to pay for things like homeowners insurance and taxes.
• Calculating the real mortgage expense.  Your monthly mortgage payment can increase dramatically once the cost of taxes is factored into the equation. It is therefore extremely important to consider taxes when budgeting for the cost of a new home.