An Overview of Amortization: It Plays A Role In Monthly Mortgage Payments

Posted on March 3, 2021March 3, 2021 by webmaster

An Overview of Amortization: It Plays A Role In Monthly Mortgage Payments Even though this may sound like a fancy word, amortization is simply a long word for a straightforward topic. Furthermore, it plays a significant role in the determination of monthly mortgage payments.

Before taking out a home loan, homeowners need to understand how their payment schedule works and what this means for the future of the home loan.

Amortization refers to the way monthly payments are calculated to make sure that homeowners pay the same amount every month throughout the life of the loan. Even if homeowners do not stay in the house for the life of the loan, amortization will still play a significant role in the amount of money they receive if they decide to sell the home.

Amortization Plays A Major Role In Calculating Monthly Payments

First, amortization plays a major role in calculating monthly payments because it ensures that homeowners pay the same amount of money over the life of the loan. Even though there is interest on the home loan, and inflation will play a role in the value of money during the life of the loan, the monthly payment is going to stay the same. This is particularly beneficial to homeowners who are still working and believe that their income is going to go up during the life of a 15 year or 30 year mortgage. Even if their income goes up, and even if inflation plays a role, their monthly mortgage payments will still stay the same thanks to amortization.

Amortization Divides Interest And Principal In Monthly Payments

On the other hand, amortization also plays a role in calculating interest versus principal in monthly mortgage payments. At the beginning of the loan, the majority of each monthly payment goes toward interest on the loan. At the end of the loan, the majority of each monthly payment goes toward principal. This also means that if homeowners decide to sell their home at some point during the loan, they might not get as much money as they think because most of their monthly payments have gone toward interest and haven’t built up any equity. This is another key factor homeowners should keep in mind when it comes to amortization.

What Homeowners Must Do When Behind On Mortgage Payments

Posted on February 4, 2021February 4, 2021 by webmaster

What Homeowners Must Do When Behind On Mortgage Payments There are lots of homeowners who fall on rough times from time to time. For example, some people may be in the midst of changing jobs. Other people might be going back to school. When this happens, it can be hard for homeowners to keep up with their mortgage payments. Even though they might be thinking about waiting for the bank to do something, this would be the ultimate mistake.

There are ways to handle late mortgage payments as long as homeowners reach out to the lender to discuss their options. What should homeowners do if they start falling behind on their mortgage payments?

Let The Lender Know Why They Are Falling Behind

If lenders do not hear anything from the homeowners, they are not going to know what is going on. Therefore, they may end up taking drastic action. The first thing that homeowners need to do is to let the lender know that they are falling behind on their mortgage payments. That way, the lender understands that the homeowner knows he or she is behind on the mortgage. Then, let the lender know why the mortgage payments will be coming in late. For example, there might be an unexpected medical expense that took the mortgage payment that month. Or, the homeowner might be looking for a new job. These are all understandable reasons why the mortgage payments might be late.

Ask The Lender To Go Over The Options

Next, the homeowner also should discuss with the lender all of the options when it comes to late mortgage payments. There are lots of options available. If there is a one-time unexpected expense, the lender might simply break up that payment and spread it out over the upcoming payments without charging any extra interest. Or, the lender might be willing to simply add a few months to the mortgage in exchange for not charging a late fee. These are a few of the many options the lender has at his or her disposal.

Do Not Ignore Late Mortgage Payments

The only mistake that homeowners can make with late mortgage payments is not communicating with the lender. As long as the lender understands what is going on, homeowners should have options at their disposal.

How Much Income Should People Spend On A Mortgage?

Posted on October 30, 2020October 30, 2020 by webmaster

How Much Income Should People Spend On A Mortgage? When people are looking for a home, this is an exciting process. There is always something fun about looking at potential homes and envisioning a future there. This is a big decision. At the same time, it is just as important for people to think about how much of their money they should be spending on their mortgage. There are a few rules of thumb that people should keep in mind.

The 28 Percent Rule

One of the most common rules that financial advisors and lenders are going to talk about is going to be the 28 percent rule. This rule states that people should not be spending any more than 28 percent of their pre-tax income on their monthly housing payments. This includes not only the mortgage but also any potential homeowners association fees, real estate taxes, and home insurance payments. Once people figure out how much they can afford on their monthly mortgage payment, they can work backward to see how large of a house they can afford.

The 36 Percent Rule

The other rule that homebuyers are going to hear is the 36 percent rule. This is a rule that pertains to all debt. Therefore, this rule includes not only the monthly mortgage payments but also any car payments, credit card payments, utilities, and student loans. In general, no more than 36 percent of someone’s pre-tax income should be going toward debt. This is very important for taking out a home loan because it is going to impact someone’s debt to income ratio. If the debt to income ratio is too high, then potential homeowners are going to have a hard time getting a great deal on a mortgage. Furthermore, they could even be denied completely.

Find The Right House

For those who are looking for a home, this is an exciting time. At the same time, it can also be hard to find the right home when people don’t know exactly what they’re looking for. When potential homeowners understand what their budget is, this process gets much easier. Therefore, everyone needs to think about how big of a monthly mortgage payment they can afford. This will help them make the right decision.