Tag Archives: Real Estate

4 Ways To Pay Off Your Mortgage Early

Understanding the power of compounding interest can truly change your life. You’ve probably heard people describe money as a snowball – meaning it’s either shrinking or growing at an exponential rate. Well that simple concept should give motivation for people to aim to pay off their mortgages early if they can. If you’d like to see what I’m talking about Click Here to play with a mortgage calculator and study how much money you might save in interest if you pay a little extra each month. Or study below one of the other 3 paths. There’s never a better time than now to make a positive change in your life.

-Grady

4 ways to pay off your mortgage early

If you can afford it, it might be simple to pay off your mortgage early. But should you? That’s a complicated question.

Homeowners with low mortgage rates may be better off putting extra money in a Roth IRA or 401(k), both of which might offer a higher return than paying off the mortgage.

Then there’s the college aid factor. If you’re applying for need-based aid for your kids, that home equity could count against you with some colleges because some institutions view equity as money in the bank.

If, after those caveats, you want to pay off your mortgage early, here are four ways to make it happen.

  • Refinance with a shorter-term mortgage
  • Pay a little more each month
  • Make an extra mortgage payment every year
  • Throw ‘found’ money at the mortgage

Should You Pay Off Your Mortgage Before You Retire?

There are many misconceptions about mortgages and retirement. Greg McBride breaks down the facts.

1. Refinance with a shorter-term mortgage

You can pay off the mortgage in another 15 years by refinancing into a 15-year mortgage.

Let’s say you got a 30-year fixed-rate mortgage for $200,000 at 4.5 percent. Then, five years later, you can refinance into a 15-year loan at 4 percent. Doing so pays off the mortgage 10 years earlier and saves more than $60,000 (if you exclude closing costs on the refi).

Those shorter-term mortgages often carry interest rates a quarter of a percentage point to three-quarters of a percentage point lower than their 30-year counterparts.

Refinancing isn’t quick or free. It requires filling out the application, providing documentation and having an appraiser visit. There are closing costs.

And even with a lower interest rate, that quicker payoff means higher monthly payments. And this method is a lot less flexible. If you decide that you don’t have the extra money one month to put toward the mortgage, you’re locked in anyway.

Unless the new interest rate is lower than the old rate, there’s no point in refinancing. Without a lower rate, you’ll get all the same benefits (and none of the extra costs) by just increasing your payment a sufficient amount.

2. Pay a little more each month

Divide your monthly principal and interest by 12 and add that amount to your monthly payment for a year. Result: You make the equivalent of 13 payments in 12 months.

Let’s say you got a $200,000 mortgage at 4.5 percent. After five years of making the minimum payments, you add an extra 1/12 of a month’s principal and interest to each monthly payment. Doing so pays off the mortgage three years and three months earlier and saves more than $18,000 interest.

Before you make anything beyond the regular payment, call your mortgage servicer and find out exactly what you need to do so that your extra payments will be correctly applied to your loan.

Let them know you want to pay “more aggressively” and ask the best ways to do that.

Some servicers may require a note with the extra money or directions on the notation line of the check.

In any event, if you’re putting extra money toward your loan, always check the next statement to make sure it’s been properly applied.

3. Make an extra mortgage payment every year

Instead of paying a little more each month, make one extra monthly payment each year. One way to do this is to save 1/12 of a payment every month, and then make an extra payment after every 12 months. This gives you the flexibility to use the extra savings for something else if a more pressing expense arises.

Let’s say you do this starting the first month after getting a 30-year mortgage for $200,000 at 4.5 percent. That would save more than $27,000 interest, and you would pay off the mortgage four years and three months earlier.

4. Throw ‘found’ money at the mortgage

Get a bonus? A tax refund? An unexpected windfall? However it ends up in your hands, you can funnel some or all of your newfound money toward your mortgage.

Let’s say you got a 30-year, fixed-rate mortgage for $200,000 at 4.5 percent. Then, five years later, you can make an extra $10,000 lump-sum payment. Doing so pays off the mortgage two years and four months earlier, and saves more than $19,000 in interest.

The upside: You’re paying extra only when you’re flush. And those additional payments toward the principal will cut the total interest on your loan.

The downside: It’s irregular, so it’s hard to predict the mortgage payoff date. If you throw too much at the mortgage, you won’t have money for other needs.

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Source: Pay Off Mortgage Early: 4 Ways To Do It

Norman’s First Black Homeowners Reflect On Five Decades Of Culture Shock And Progress | University of Oklahoma | Normantranscript.com

I had the pleasure of hearing Dr. Henderson speak last year, and then chatted with him for about 10 minutes. On this Martin Luther King Jr. Day this is a great story for people of Norman to remember.

-Grady

Norman’s first black homeowners reflect on five decades of culture shock and progress

When George and Barbara Henderson moved from Detroit to Norman with seven children and Barbara’s mother nearly 50 years ago, they were embarking on an uncertain journey, one that many of their colleagues and friends encouraged them not to make.

Norman was a white town and the Hendersons were a black family. Their friends feared for them.

After some soul searching and labored consideration, they made the move anyway. In 1967, the Henderson family became the first black family to buy a house in Norman, a town that still had sundown laws that prohibited blacks from public life after dark.

The University of Oklahoma had offered George a job as an educational sociologist. He ultimately accepted the position on the condition that he could find adequate housing for his large family. Realtor Sam Matthews, whose name would later grace the Xenia Institute’s humanitarian award, sold them the house at 2616 Osborne Drive.

The Hendersons still call it home to this day. Now, they couldn’t imagine living anywhere else, but when they first moved, they weren’t joining the black community in Norman, they were it.

“You have to understand, we lived in an all-black neighborhood,” George said. “We were part of Detroit society. So, we were integrated into that community. And at that time, Detroit was roughly 75 percent white and 25 percent black. There was no way for us to be prepared for this … I should have listened to my mentor. They said don’t do it. Don’t go there.”

The Hendersons were plugged into the community in Detroit. Oklahoma would prove to be a fresh start with a predictably sour taste. Though gradual attitude shifts occurred over time, and some Normanites did welcome them with open arms, George and Barbara said their initial arrival was met with an unfair share of dirty looks and racist whispers.

Barbara said they knew immediately that they were not wanted by some of their neighbors. It took many forms: Rude phone calls, trash in the yard, hateful messages passed between acquaintances and even threats to their daughters. Their son became the first black player to win a varsity letter in basketball at Norman High, but despite his talent, he still faced an uphill battle. George said that his son’s coach, the late Max Marquardt, told them straight up: “Norman isn’t ready for a black starter.”

George said that may have cost his son an opportunity to vie for an opportunity in the college ranks. Despite those setbacks, he said his children were strong.

“We had never lived this experience,” George said. “I taught it. I even fantasized about it from time to time but I never had a chance to live it. My children did. They were living it. But they didn’t come looking for the negatives. They came looking for the positives and they found them. We were fortunate that their was a university school here. And many of the faculty and staff had their children in that school. Some of the most liberal and progressive people in Norman had their children their.”

When George made the move, he said he was embracing a chance to study the sociological perspective of racism and culture first hand. He was involved in civil rights activities in Detroit, so he considered the move to be “just another challenge.”

He became a stranger in a strange land, an embedded scholar in a hypocritical environment that dominated the cultural landscape of the South during the 60s and beyond.

As time went on, George said things improved, but there was no definitive moment. Eventually, even Marquardt would apologize to their son for lacking the courage to start him.

“It was like Dickens. It was the best of times and the worst of times, but in reverse. The worst of times became the best of times.”

Barbara said it happened because they were working for it. They were unapologetically living their lives here. They were making friends and claiming Norman as their own in spite of it all. Their home became a beacon for guests of the university who had nowhere else to go. When world-famous poet Maya Angelou came to Norman, she visited the Henderson house. When 11-time NBA Champion Bill Russell came to Norman, he visited the Henderson house. He shot baskets with neighborhood kids in the Henderson driveway. The only kids in the neighborhood who got left out were those whose parents had forbidden them to play with the Henderson kids. George said those moments revealed the ridiculous nature of those prejudices.

“What’s interesting to me,” George said, “is that most of the people who didn’t like us just avoided us, or moved out of the neighborhood.”

Barbara said their children were crucial to that issue. She said as they grew, they made connections to other children that would ingrain the Hendersons in the Norman landscape.

When they were faced with slurs and condescension, Barbara said their friends would counter back.

“Or (my children) would,” Barbara said. “They knew who they were. They didn’t have any complexes about being lesser human beings.”

While his family helped change racial attitudes in Norman, George went on to a storied career with the university. The son of Alabama sharecroppers founded OU’s human relations program. He was inducted into the Oklahoma African American Hall of Fame, the Oklahoma Higher Education Hall of Fame and his work garnered him awards like the Walter Nuestadt Award, The Xenia Institute Sam Matthews Humanitarian Award, the Distinguished Service Award from OU, the White Buffalo Mask Award and many more.

After a lifetime in Oklahoma, George said things have changed, but the change he has seen over the decades may only go skin deep. Beneath the facade of social equality there’s still much work to be done.

“Racism hasn’t gone away,” Barbara said. “The face of it’s just changed.”

George said he still sees it.

When he enters the elevator, he sees it.

When he waves hello and gets the cold shoulder, he feels it.

“People are politically correct now,” George said. “You can think it. You can say it privately, but publicly it’s not kosher. It hasn’t gone away. Its death was greatly exaggerated. It still happens on a regular basis.”

Still, George said he isn’t angry. He wasn’t angry when he saw the video of OU students chanting racial slurs on a party bus.

He wasn’t angry when racist vandalism popped up in Norman last year. He believes the path to a brighter future is born of understanding, not judgement.

“The university asked me, and I agreed, to offer diversity training to the students that remained. All of the students who were not expelled spent a Saturday morning with me. I felt that I had to get to know them. They were shocked at first. Here they were going to have to spend a Saturday morning with a black professor …”

Barbara said those students probably expected the worst. What they got instead was George.

“What they got instead was someone who was just curious,” he said. “I felt like I needed to get to know them. I asked them to tell me about themselves, what’s happening to you, for you, about you. And I shared my regret that they indeed had to suffer through some of these things. What they shared with me was that for the first time, they understood what it was like to be a minority and singled out. They were demonized and people didn’t even know them.”

George said those students didn’t just wake up and decide to create that chant. It had to be taught to them. It’s a matter of ritual, the kind that takes time to create, and time to dismantle.

“They will think now,” George said. “It will stay with them for a long time. They got a chance to see the other side. I guess it was good for them to see that (I) could have extracted a morning of pain and that wasn’t the purpose. It was a teachable moment.”

Those are the kinds of moments that George said will make the difference. He’s still combating racism, one class at a time.

“Their children will not be taught the way they were taught,” he said. “They are more accepting. I see the hope in the next generation and the one after that, if I can just reach them.”

He said change is slow, but in a way, inevitable. As younger generations supplant older generations, they supplant old ideas. And though he said it’s absurd to ignore our differences, he said he looks forward to a future where our diversity as Americans and Normanites is celebrated.

“If we were all the same,” George said, “what kind of world would this be? I see the future I want every semester I teach.”

Source: Norman’s first black homeowners reflect on five decades of culture shock and progress | University of Oklahoma | normantranscript.com

“These 6 Charts Tell You Everything You Need to Know About the Real Estate Market”

This article was written in 2016 and it is a little bit simplistic, but overall I think that it is a good quick read to talk about the general state of the economy in relation to Real Estate. I know that in Norman in particular this year we’ve definitely had many conversations about the rental market. If you have anything you’d like to add feel free to comment below or on Facebook.

-Grady

These 6 Charts Tell You Everything You Need to Know About the Real Estate Market

There’s likely no sector as important to the U.S. economy as housing.

In the first quarter of 2016, residential investment accounted for roughly half of the 1.1% increase in real GDP. Historically, this is on the high side, but when you count spending on housing services as well as spending on various kinds of housing construction, the home construction industry can account for as much as one fifth of overall output in the U.S. economy.

That’s why housing has traditionally powered the American economy out of recessions, and that’s why housing’s role as the trigger of the Great Recession was so damning to the subsequent recovery. While housing prices have improved—with home values in some markets higher than before the crisis—there’s evidence that the housing bust has inflicted long-term damage on the home building industry and therefore the American economy. Here are 6 charts from Torsten Slok, Deutsche Bank’s Chief International Economist, that show the state of the housing market and how it’s powering, and holding back, the rest of the economy.

People Really Want to Buy Homes

There’s evidence that the millennial generation has been slow to warm to the idea of homeownership, as they are generally delaying decisions like marriage and child rearing. But as this chart shows, overall, Americans are still in the market for new homes.

But Homebuilders Have Been Slow to Respond to Demand

The rate at which homebuilders are constructing new single family homes remains quite depressed, despite steadily increasing demand. Those in the business have argued that supply-side factors, like increased regulation and a short supply of skilled labor as reasons they have been slow to meet demand.

The Homes Being Built are Mostly for the High End of the Market

There are many metrics that one can use to show that homebuilders have decided that it makes sense for them to target wealthier buyers, but the above chart is striking. During an otherwise sluggish economic recovery, the increase in the size of new homes for sale has actually accelerated.

Because Middle-Class Homebuyers Can’t Get Financing

Home builders aren’t the only business that has been turning it’s back on the American middle, for the simple reason that middle class incomes have been on the decline for years now. Furthermore, the mortgage finance industry is still leery of lending to all but the most creditworthy borrowers.

Rental Markets are Tighter Than They’ve Been in Generations

The lack of credit available for new homebuyers has forced more and more homeowners into the rental market, driving up rents and put further pressure on already strained middle-class budgets.

Hope Springs Eternal

Despite what appears to be a negative feedback loop of stagnating middle-class incomes, tight credit, and a homebuilding industry that can’t profitably cater to most of the country, demographics have analysts hopeful that things will turn around in the future. The modal age in America is 26, and this echo-boom generation has yet to settle down and seriously consider homeownership. Analysts hope that this new demographic wave will jolt the housing sector back into pre-bubble normalcy. And we’re moving in the right direction.

Time heals all wounds, even in the real estate market.

Source: These 6 Charts Tell You Everything You Need to Know About the Real Estate Market

New OKC Listing (4 bed, 3.5 bath) – 1433 SW 71st

A well kept and discretely grand house just minutes from downtown Oklahoma City. Sitting on an oversized lot this split bedroom plan is ready for someone to come and make it their own. This home has 3 possible living rooms, and one could be kept as an office space. The storage unit in the backyard is large, and could be used as a workshop, or it could easily store equipment and motorized toys. This wonderful home is priced to sell, and ready for someone to love it!

Walk Through Tour – 1433 SW 71st St

New Listing Alert!!! If you are looking for a very well kept home in Oklahoma City come check this puppy out! 4 bedrooms, 3 and a half bathrooms, on a great big lot just minutes from downtown. Click on the links below if you'd like more information, or just call your Realtor to set up an appointment.

For more pictures click here —–> https://goo.gl/H3ihYp
To see the full listing click here —-> https://goo.gl/FCMTyE

Grady Carter
Metro Brokers of Oklahoma
Lic. #160723
(405) 474-2905

Posted by Grady Carter – Home Boy Real Estate on Thursday, September 7, 2017

 

Source: 1433 SW 71st — Premier House Tours

Campus Open House, Sunday 8/13 from 2:00 to 4:00 – 636 E. Boyd

What are you doing this weekend?! If you are going to be around Norman in the afternoon you should stop by and see me at 636 E. Boyd Street between 2:00 and 4:00 PM. This house is beautiful, and ready for someone to come and love on it. Who do you know who might want to live by campus in Norman? Well feel free to share this with them 🙂

 

Walk Through Tour – 636 E Boyd

New Listing Alert!!!

636 E Boyd Street, Norman, OK

Check out more pictures here —–> https://goo.gl/osR47t
And see the full listing here ——-> https://goo.gl/wdMnAw

Who is looking for an amazing campus home in Norman, Oklahoma?! Just an arrow's flight from The Mont Restaurant and The University of Oklahoma this amazing historical home has tons of character! It boasts: a split plan with 4 bedrooms, 3 bathrooms, 3 living/flex spaces, and a recently updated kitchen. The kitchen looks out over a fantastic covered patio just waiting to entertain before a game, or to sit on while a rain storm rolls through town. And don't miss the wonderful newly added Pella windows. And if you love older homes you will love these original hardwood floors. There is plenty about the house to tell you about, but I highly recommend that you just come and see it for yourself. Call your Realtor to set up an appointment today!

Grady Carter
Metro Brokers of OK
(405) 474-2905
https://goo.gl/mDdLE3

Posted by Grady Carter – Home Boy Real Estate on Thursday, July 27, 2017

New Norman Listing: 3 Bed, 2 Bath Split Plan – $123,000!!!

Well here is a cute one!

https://goo.gl/wZwdje
New Listing Alert: We've got a cute one! This 3 bed / 2 bath little puppy hit the market this…

Posted by Grady Carter – Home Boy Real Estate on Thursday, March 16, 2017

NEW LISTING ALERT!!! – Walk Through Video Tour, 837 Carol Ann Place

Well, here is a new listing in Moore, Oklahoma that I really love!

837 Carol Ann Place – Walk Through Tour

NEW LISTING ALERT!!! – Walk Through Video Tour
https://goo.gl/r43j0B

*837 Carol Ann Place, Moore, OK 73160*
This awesome home has: 4 Beds, 2 Baths, a 3 Car Garage, an Office and a whole lot more! I'm happy to tell you more about this house, but you can just come on in for yourself by watching our walk through tour. Do you know anyone who might be looking for a house like this? Be their buddy and send them this video, or tag them in the comments. This home is looking for another great group to take care of it next! 🙂

For More Info See The Full Listing:
https://goo.gl/r43j0B

Grady Carter
Realtor®, GRI
Metro Brokers of OK
Lic. #160723
(405)474-2905
www.HomeBoyOK.com

Norman Board of Realtors, Oklahoma Association of REALTORS®, National Association of REALTORS®

Posted by Grady Carter – Home Boy Real Estate on Thursday, March 2, 2017

For More Info See The Full Listing:
https://goo.gl/r43j0B

Staging Tips for Selling During the Holidays | Real Estate Tips | HGTV

 

“Michael always says “K-I-S-S. Keep it simple, stupid.” Great advice. Hurts my feelings every time.” -Dwight K. Schrute, ‘The Office’ television show

Sometimes the most important information is the simplest information. When it comes to listing a house you’re probably better off making things easier on yourself by making a small list of items to take care of. When a buyer walks through your listed property they’re going to want to know what you’d probably most likely want to know as you walk through a house – which is whether or not the property has been taken care of. If you’re getting ready to list your house make a simple list and if you want to talk if over just call your homeboy.

*I would esspecially pay attention to #5.

Grady Carter
Realtor®, GRI
Metro Brokers of Oklahoma
Lic. #160723

 

“Tricks of the trade to help you get top dollar when selling your home.”

10 Best-Kept Secrets for Selling Your Home | Interior Design Styles and Color Schemes for Home Decorating | HGTV

Selling Secret #10: Pricing it right
Find out what your home is worth, then shave 15 to 20 percent off the price. You’ll be stampeded by buyers with multiple bids — even in the worst markets — and they’ll bid up the price over what it’s worth. It takes real courage and most sellers just don’t want to risk it, but it’s the single best strategy to sell a home in today’s market.

How to Sell Your Home: Tips & Tricks 9 Videos

Selling Secret #9: Half-empty closets
Storage is something every buyer is looking for and can never have enough of. Take half the stuff out of your closets then neatly organize what’s left in there. Buyers will snoop, so be sure to keep all your closets and cabinets clean and tidy.
Selling Secret #8: Light it up
Maximize the light in your home. After location, good light is the one thing that every buyer cites that they want in a home. Take down the drapes, clean the windows, change the lampshades, increase the wattage of your light bulbs and cut the bushes outside to let in sunshine. Do what you have to do make your house bright and cheery – it will make it more sellable.
Selling Secret #7: Play the agent field
A secret sale killer is hiring the wrong broker. Make sure you have a broker who is totally informed. They must constantly monitor the multiple listing service (MLS), know what properties are going on the market and know the comps in your neighborhood. Find a broker who embraces technology – a tech-savvy one has many tools to get your house sold.
Selling Secret #6: Conceal the critters
You might think a cuddly dog would warm the hearts of potential buyers, but you’d be wrong. Not everybody is a dog- or cat-lover. Buyers don’t want to walk in your home and see a bowl full of dog food, smell the kitty litter box or have tufts of pet hair stuck to their clothes. It will give buyers the impression that your house is not clean. If you’re planning an open house, send the critters to a pet hotel for the day.
Selling Secret #5: Don’t over-upgrade
Quick fixes before selling always pay off. Mammoth makeovers, not so much. You probably won’t get your money back if you do a huge improvement project before you put your house on the market. Instead, do updates that will pay off and get you top dollar. Get a new fresh coat of paint on the walls. Clean the curtains or go buy some inexpensive new ones. Replace door handles, cabinet hardware, make sure closet doors are on track, fix leaky faucets and clean the grout.
Selling Secret #4: Take the home out of your house
One of the most important things to do when selling your house is to de-personalize it. The more personal stuff in your house, the less potential buyers can imagine themselves living there. Get rid of a third of your stuff – put it in storage. This includes family photos, memorabilia collections and personal keepsakes. Consider hiring a home stager to maximize the full potential of your home. Staging simply means arranging your furniture to best showcase the floor plan and maximize the use of space.

15 Home Staging Secrets

See All Photos

Get expert advice on how to highlight your home’s strengths.

Selling Secret #3: The kitchen comes first
You’re not actually selling your house, you’re selling your kitchen – that’s how important it is. The benefits of remodeling your kitchen are endless, and the best part of it is that you’ll probably get 85% of your money back. It may be a few thousand dollars to replace countertops where a buyer may knock $10,000 off the asking price if your kitchen looks dated. The fastest, most inexpensive kitchen updates include painting and new cabinet hardware. Use a neutral-color paint so you can present buyers with a blank canvas where they can start envisioning their own style. If you have a little money to spend, buy one fancy stainless steel appliance. Why one? Because when people see one high-end appliance they think all the rest are expensive too and it updates the kitchen.

Painting Kitchen Cabinets

See All Videos

Update the look of your kitchen with these pro tips.

Selling Secret #2: Always be ready to show
Your house needs to be “show-ready” at all times – you never know when your buyer is going to walk through the door. You have to be available whenever they want to come see the place and it has to be in tip-top shape. Don’t leave dishes in the sink, keep the dishwasher cleaned out, the bathrooms sparkling and make sure there are no dust bunnies in the corners. It’s a little inconvenient, but it will get your house sold.
Selling Secret #1: The first impression is the only impression
No matter how good the interior of your home looks, buyers have already judged your home before they walk through the door. You never have a second chance to make a first impression. It’s important to make people feel warm, welcome and safe as they approach the house. Spruce up your home’s exterior with inexpensive shrubs and brightly colored flowers. You can typically get a 100-percent return on the money you put into your home’s curb appeal. Entryways are also important. You use it as a utility space for your coat and keys. But, when you’re selling, make it welcoming by putting in a small bench, a vase of fresh-cut flowers or even some cookies.

Curb Appeal Tips

See All Videos

See how to make the all-important first impression.

Source: Staging Tips for Selling During the Holidays | Real Estate Tips | HGTV

Mortgages – Home Loans, Rates, Points and Terms

Being a Realtor® is a funny thing. I like to compare it to being a party planner. I don’t make the ice sculpture, prepare the food – but if the band needs someone to fill in on the mic I’d be happy to :-). I say that to mention that I personally like to see myself as a consultant and an advisor. I am not a lender or a mortgage expert, but I have tried very hard to educate myself on how loans function. In the chart included you’ll see a simplified visualization of an amortization schedule – which shows the life of a loan assuming you simply pay the minimum payment. If you make extra payments that amount over the minimum payment goes 100% to principal assuming that the loan doesn’t have a prepayment penalty. One of the main things that I’d like to convey to home buyers is that the longer that you own your home the more equity and wealth you’ll gain from owning that property. So buying and selling homes more regularly is inherently more expensive. However, if you do need to buy or sell a home it’s important to make sure that you know what you’re moving parts are. Call your HomeBoy if you want to talk about your moving pieces, but in the meantime read this article to get started.

Grady Carter
Realtor®, GRI
Metro Brokers of Oklahoma
Lic. #160723

“Mortgages are liens on a specific piece of property, which enable borrowers to borrow money to live or do business on that property.”

amortization-schedule

Mortgages

If you’ve decided to buy a house, a townhouse, condominium or apartment, it’s almost a certainty that you will join the millions of Americans who are bound to their home by one thing — a mortgage.

Although many people believe a mortgage is a loan, a mortgage is actually the lien on the property. When a bank holds a mortgage on a house, it means the lender has a claim to the property in case the borrower defaults on the loan.

A mortgage loan is similar to a car loan. Both are secured by real property and require a monthly payment to cover principal and interest. Mortgage loans are amortized: they are calculated so that the principal and interest payments are spread out over the loan period (usually 10 to 30 years) gradually until the principal is paid off.

A mortgage is generally the largest debt that the average family carries. At of the end of 2012, Americans families had more than $13.1 trillion in total mortgage debt.

It is important to understand all that is involved when you apply for and maintain a mortgage account.

You monthly payment is calculated by a combination of factors:
  1. The loan amount
  2. The length of the loan
  3. The interest rate of the loan

There is also an initial cost of a getting a mortgage. Those costs can involve traditional and non-traditional lender fees. Common questions that prospective borrowers have include: How do mortgages work? What are the different factors to consider? And how do you know if you qualify?

How Does a Mortgage Loan Work?

When you decide on a home you wish to buy, your mortgage lender works with you, your real estate agent and the seller of the property to close the deal. The deal begins by you being pre-qualified to borrow up to a specified amount of money to pay for the house.

Once you are pre-qualified and you have an offer on a home accepted by the seller, you will work with your mortgage lender to ensure that you have the financial ability to pay for the mortgage every month.

When you’ve met all requirements of the transaction, the lender sets a closing date so that you can sign paperwork to finalize the loan. At closing the bank’s agent issues the cash required to buy the home to the seller and distributes all required fees to the other parties as well.

After closing you must begin making regular payments on your account to avoid default. Defaulting on a mortgage loan could eventually lead to foreclosure, where the bank reclaims the home.

In most cases, to close a mortgage loan you must come prepared with a down payment. The amount varies from about 3.5 percent to 20 percent of the home sales price depending on the lender and the loan program offered.

How to Qualify for a Mortgage

Besides being able to make a down payment, you must meet an extensive list of factors to qualify for a mortgage loan. First, your credit score must be good to excellent. A 2010 U.S. Housing and Mortgage Trends report by CoreLogic showed that 60 percent of borrowers who secured conventional mortgages had a credit score of 780 or higher. More than half of FHA borrowers needed a score of 680 or better.

Additional minimum requirements normally include:
  • A housing expense debt-to-income ratio of 28 percent (called the front-end ratio)
  • A total debt-to-income ratio of 36 percent (called the back-end ratio)
  • A job that you’ve held for at least two years
  • Employment and salary verification
  • Extensive paperwork to document your financial situation
  • A professional appraisal
  • Cash for closing costs

Also, some lenders require private mortgage insurance (PMI) on mortgage loans, particularly when the down payment is less than 20 percent.

Types of Mortgages: Conventional, FHA and VA

There are a number of mortgage options available to you as a borrower. The three general types are conventional loans, FHA loans and VA loans. Each has specified qualification factors.

Conventional loan: This is a loan that is not backed by a government agency. It is a straight agreement between a bank and a buyer. You usually need very good credit and a substantial down payment of at least 10 to 20 percent to secure a conventional mortgage loan.

A Federal Housing Administration (FHA) loan: This is one that is backed by the federal government. This type of loan is common for applicants with credit problems or who cannot afford a substantial down payment.

A U.S. Department of Veterans Affairs (VA) loan: A VA loan is similar to an FHA-backed loan except the VA is the guarantor. It is available to qualified military personnel who are veterans or on active duty.

Fixed vs. Adjustable Rate Loans

Mortgage loans come in all shapes and sizes. They come with short terms (five years, often with a balloon payment at the end); medium terms (15 years) and long terms (30 and 40 years). They also come with fixed interest rates and adjustable (or variable) interest rates, and there are also reverse mortgages.

Fixed-Rate Loans

A fixed-rate loan is just what the name suggests: An interest rate is agreed upon before the mortgage is signed, and that rate never changes for the life of the loan, no matter the length of term.

For generations, the staple loan of the mortgage industry has been the 30-year fixed mortgage. That means a borrower will make 30 years of payments of the same principal and interest payments. This type of loan is the least risky type of mortgage loan.

The popularity of the fixed-rate loan was two-fold. Lending institutions like banks and credit unions liked it because they could count on long-term income at a specified rate. Borrowers liked the loans because they knew what their monthly payment would be for the life of the loan. There are no surprises.

Adjustable-Rate Mortgage Loans

Adjustable rate mortgages (ARM) loans are more complex than fixed rate loans. The bank offers you a low introductory rate for a period of time (usually one to five years) then the rate begins to adjust. The rate varies depending on certain financial indices — usually the Cost of Funds Index (COFI) or the London Interbank Offered Rate (LIBOR).

ARMs are attractive to borrowers who want to enjoy a low monthly payment for a while, but they can become a major burden when the rate goes up.

Other programs include balloon and buy-down loans. With a balloon loan the borrower agrees to make a large lump sum payment at the end of the loan. A buy-down loan is similar to an ARM except the rate change occurs toward the end of the loan period and the interest may vary up to three times instead of every month, quarter or year like ARMs.

Mortgage Rates

The rate of your mortgage means the interest rate of your home loan. It is one of three key drivers – along with the amount of money you borrow and the length of time for which you borrow – of your monthly payment.

As a result of the Great Recession and the bursting of the U.S. housing bubble, home interest rates are at some of the lowest points in history. Lenders are agreeing to 30-year fixed loans with interest rates of less than 4 percent.

How Interests Rates Are Determined

The federal government has three quasi-government institutions that are the primary agencies dominating the secondary mortgage market.

They are:
  • The Federal Mortgage Association – aka Fannie Mae
  • The Federal Home Loan Mortgage Corporation – aka Freddie Mac
  • The Government National Mortgage Association – aka Ginnie Mae

Each agency serves a different function in the mortgage business, but all three help keep money flowing into the market by bundling mortgages. These mortgages are purchased with funds borrowed from investment banks. Fannie, Freddie and Ginnie sell to other investors and large financial institutions, such as pension funds and insurance companies.

In this way, money is continually being pumped back into the lending system. The three agencies provide the funding to individual lenders so they can continue to offer mortgages to new homebuyers. In effect, then, the real supplier of your mortgage is not your bank, which is merely servicing your loan, but the agencies and financial institutions that buy and sell the mortgage-backed securities in an endless cycle of commerce.

It is in this secondary market that interest rates for mortgages are set. These rates are constantly fluctuating based upon the amounts that the various players in the game – the three primary agencies and their customers – set as their profit margins, or “spread,” when buying and selling mortgage-backed securities.

Your Monthly Mortgage Payment

When negotiating a mortgage, it is important to understand that the interest rate does not truly reflect your total monthly costs. The Truth in Lending Act requires all lenders to state on loan documents the Annual Percentage Rate, also known as the APR. The APR is defined as the cost of credit to a borrower in relation to the amount borrowed, expressed as a yearly rate.

Your APR will most always be slightly higher than your interest rate because it includes other items associated with obtaining a mortgage, such as origination fees, any points purchased, prepaid mortgage interest, mortgage insurance premiums, and various other lender fees.

What is most essential to remember is that your interest rate is only one piece of the borrowing puzzle and must be considered in context when applying for the most appropriate and affordable mortgage you can find.

The modern mortgage industry offers a huge array of products. There are also many government-backed mortgage programs, which have their own sets of qualifications and conditions. Take the time to explore all options and don’t believe lenders who advertise unrealistically low interest rates. These are the ones who make up your “savings” in exorbitant lending fees.

Your mortgage payment will likely be a considerable part of your monthly expenses for some time to come. It pays to use your head before signing on the dotted line. Compare offers, be prepared to ask many questions and take the time to do the math, so that your dream home is not accompanied by a nightmare of a mortgage.

Mortgage Points

HOW MANY POINTS
SHOULD YOU BUY?

Mortgage: $90,000

Interest rate: 7.5 percent

Monthly payment: $629.30

Each point costs $900 and will lower your interest rate by one-quarter of a percentage point.

If you purchase two points for $1,800, you are left with:

Interest rate: 7 percent

Monthly payment: $598.78

————————————-

Monthly savings: $30.52

Now divide the cost of the points by the monthly savings.

$1,800 / $30.52 = 58.98

This means it will take 59 months to break even. If you plan on staying in your home for five years or longer, you would be saving money by purchasing those two points.

Although there are many diverse offerings among mortgage lenders, you will find some similarities no matter where you turn. For instance, every mortgage offer will come with an interest rate, a payback period (term), processing fees and the option of paying “points” on the loan.

A point is equal to 1 percent of the principal amount of a mortgage. For example, if the mortgage is for $100,000, each point is worth $1,000. By paying more points on a loan, future home owners can get negotiate down their interest rate, thereby lowering their monthly payment.

One type of points — origination points — is actually a fee that you may be charged when you take out a mortgage. These points do not provide any value to the borrower and should be avoided if possible. Discount points, on the other hand, can be paid to a lender in order to obtain a loan at a lower interest rate.

Depending upon the lender and the daily fluctuations in the mortgage market, each point you pay will reduce your interest rate from one-eighth to one-quarter of a percentage point. You may have the option of paying for up to four discount points or more.

When deciding whether to pay for points —  or how may to buy —  you need to consider how long you plan on staying in the home. That will determine your break-even point, the length of time you’ll need to stay in your house to make the purchasing of points an economically advantageous choice. The longer you stay in your house, the more money you save with a lower interest rate.

Tax Rules and Negative Mortgage Points

In addition to lowering your interest rate, discount points are considered pre-paid interest by the Internal Revenue Service and are tax-deductible. Origination points are not deductible.

But you can only deduct discount points in the year they are paid, and only if several requirements are met, including:
  • Your main home secures the loan.
  • The points you paid conform to established rates and practices in your area.
  • The points were not paid for inspection, appraisal, title, attorney fees or property taxes.
  • The points were computed as a percentage of the principal amount of the mortgage.
  • The amount is shown as points on your settlement statement.

Buyers cannot pay points on Federal Housing Administration (FHA) or Veterans Administration (VA) loans, but on most mortgages, either the buyer or the seller can pay the points or split the cost between them. Points work in a similar fashion in the refinancing of a mortgage, but those points must be deducted on your taxes over the life of the loan and not all at once.

While less common, a lender may also offer you negative points. In that case, a bank would pay you points so that you would agree to pay a higher interest rate. This cuts down on your closing costs, which usually run several thousand dollars, and increases your monthly mortgage payment. This option would only be attractive if you could not come up with the necessary cash at closing.

It’s important to remember that just because a loan is advertised with “no points” does not mean it is the best loan for you. Points are just one item in a complex set of circumstances that you will have to consider when negotiating for a loan. Make sure you understand points and how they relate to the other details in your mortgage application, and compare several offers and combinations before making a final decision.

Reverse Mortgages

A reverse mortgage is a loan that allows you to take advantage of equity in your home. Instead of you paying the bank, the bank pays you a monthly stipend that depends on the value of the home and other factors.

Older borrowers who have paid off most or all of the mortgage balance on their homes and need additional income to cover basic needs commonly apply for reverse mortgages.

The FHA has a special program called the Home Equity Conversion Mortgage (HECM) to help homeowners in need who are over the age of 62. However, it is important to note that the lender has a claim on the property and unless the loan is paid off the homeowner may have to sell the home in the future.

Other Key Mortgage Terms

If you’re new to mortgage loans, here are a few more key terms that you should be aware of before talking to a lender or broker:

Fixed rate loan: A mortgage loan that maintains the same rate throughout the loan period

ARM (adjustable rate mortgage): A mortgage loan that starts off fixed and then varies

Discount points: Up-front payments made to the lender to get a discount on your mortgage interest rate; one point is equal to one percent

Origination fee: A processing cost commonly charged by the lender; included in closing costs 

LTV (loan to value): The amount of the loan divided by the value of the property

Seller’s assistance: A program that allows the seller to contribute up to 6 percent of the purchase price toward your closing costs

Appraisal: A valuation of the home you wish to buy

Closing costs: Fees and expenses due to the lender and other parties to the loan

Escrow: An amount held by the lender to pay for property taxes and hazard insurance; built into monthly payment

Private mortgage insurance (PMI): An insurance policy to protect the lender in case of default; built into your monthly payments if required as a condition of the loan

Amortization schedule: Shows the breakdown of interest and principal you pay with each monthly installment payment over the course of the loan

Underwriting: The process of carefully evaluating a loan application to decide if the borrower is a good credit risk

Source: Mortgages – Home Loans, Rates, Points and Terms