Often, we become so distracted by trying to secure the best offerings, we forget to take the time to understand the fundamentals. But it pays to be informed. And with a little Mortgage Savvy, you’ll feel much more confident as you navigate the largest financial transaction of your life.
Did you know the term “mortgage” actually comes from a French term meaning “death contract”?
Yikes.
Fortunately, it’s not what it sounds like. In fact, your mortgage is a tool and when used effectively, it’s can help you reach your financial goals.
At its most basic definition, a mortgage is a home loan secured by real estate property. Think of it like a contract, which outlines the rights and obligations of both the lender and the borrower.
Typically, a bank or mortgage lender will finance up to 80% of the price of the home, and you are responsible for paying it back – with interest – over a designated time period.
Each month, you agree to pay back a portion of the principal (which refers to the amount you’ve borrowed), plus the interest accrued for the month. Using an amortization formula, your lender will create a payment schedule breaking down each payment into principal and interest owed.
The amount you pay each month depends on the cost of your home, the added interest, and the length or life of your loan.
It’s important to keep in mind that the longer you take to pay off your mortgage, the higher the overall purchase cost of your home. This is because you’ll end up paying interest for a longer period of time.
During the early stages of paying back your loan, the principal gets paid off slowly, as most of the payment is applied toward paying interest. But as you approach the final stages of your loan, the majority of your payment will be applied to paying the principal down and very little is applied toward interest.
Check out our mortgage calculators to see for yourself how changing the terms of your mortgage can change the cost of your home.
Now that you understand how your mortgage works, you can see why our team at Mortgage Savvy places such a high priority on helping you become mortgage free faster.
After all, no one wants to feel locked into a “death contract” for the rest of their life.
Home ownership brings many financial benefits, but only when you are making the financial decision that’s best for you. We’re here to walk you through it every step of the way, answering any questions you have and providing experienced advice so you feel comfortable and confident in every choice you make.