Communicating With Your Real Estate Agent

What to Expect in Your Home Mortgage

Getting a mortgage on your home is basically the same as a payment plan you would have for a car, only the payments are usually higher and the payoff is many more years away. You may think that your mortgage is simply the monthly payments you make on your home to the lender or seller until you pay your home off, but there is much more to the agreement than that. Here is what to expect in your home mortgage so you aren't surprised when your real estate agent discusses terms with you prior to the sale of a home.

It's not just the mortgage

Your mortgage payment is often just the main part of your home obligations. Your home's taxes and home insurance are also factored into the mortgage rate to ensure that they get paid every month. Your lender will want to make sure the property you are borrowing on has coverage and that taxes are current so the city doesn't repossess it. Whatever you think your monthly mortgage will be, it will likely be higher because these factors have to be weighed in.

The only exception to this rule is if you are creating a mortgage between you and the seller via a title company. Title companies often leave it to the buyer to get their own home insurance and pay taxes independently.

Interest is paid off first

Whatever interest you have on the home is what the majority of your monthly payments will go to for several years, and then the amount flip flops to the home purchase getting the majority of the payoff after that. The reason for this is simple: should you default on your payments with the seller or bank they will want to have the interest paid off first so the rest of the home's value can be recovered in a foreclosure or other type of sale. You will still be paying down your home's purchase price over time, but you need to know that interest is paid first so that, if you refinance, you aren't surprised at what you have actually paid in.

Buying a home is a wonderful experience and if you can't buy the house outright, you will encounter a mortgage. A mortgage allows you to own your dream home without having to have all the money upfront, and the more you understand how it works, the better able you will be to make financial decisions regarding your home in the future.