Home Mortgage Overview

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Mortgage mathematics

The first hurdle is understanding what you can afford as a down payment toward your home and what you think your monthly mortgage payment should be. The total mortgage you can acquire hinges on those two numbers. Here are the basics on filling out a home mortgage calculator.
Interest Rate: As advertised, this is the basics. Your interest rate is the percentage you pay for the money now, over the term of the loan. It reflects the current market and economic climate, your credit, work history, earning potential, and scores of other things that will surprise and scare you. Our friend the Truth In Lending Act requires lenders to disclose the Annual Percentage Rate, which will unveil any hidden fees not included in the mortgage rate.

Term: Mortgages are typically offered in 15- or 30-year terms. Expect better rates from a fixed-rate 15-year loan than a fixed 30-year loan. Adjustable-rate loans are always at the mercy of the prime interest rate set by the Federal Reserve System, or the Feds, as we like to call them.

Points: A point is defined as 1 percent of the total mortgage. Positive points means that you pay the lender for a lower rate, but the money does not go toward the property or mortgage. For a decent return on points, you need to stick around for about five years, but it all depends on the specifics. Negative points means the lender pays you (or a slippery mortgage broker) for a higher rate. Negative points are only a good idea if you plan on selling within a few years.

Loan costs: Also known as closing costs, these are comprised of loan-related fees, title and escrow charges, government recording and transfer charges. Government costs should be the same at every lender, but the varying fees associated with reviewing and processing a loan generally range between 3 and 6 percent of the mortgage.
Something Else to Worry About

Home mortgage lenders and brokers are always scheming new ways to disguise costs and compensate for offered savings via hidden fees. Be on sharp lookout for mortgage chicanery before you lock in on a rate and seal your fate for the next 30 years. That is a different topic meriting a more detailed treatment.

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