Updated: November 22, 2017

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  • What you need to know about Mortgage Debt

    Understanding the world of real estate means you also need to know what a MORTGAGE is. What type of mortgage you should choose, understand the cost associated with each type, etc.

    1. Purchase Points

    Purchase points, also known as “buy-down” or “discount points,” is an up-front paid fee to the lender to lower the interest rate over the life of the loan. Each point is equivalent to 1% of your total load amount. Say for example you have a $100,000 loan; one point would equal $1,000. The more points you buy, the lower your interest rate, but the more money you’ll need at closing.

    Decision making of whether you should buy points and how many you should buy would depend on how long you plan on living in your home and how much you can afford to pay every month toward your mortgage. If you decide to live for 5years or more in your home, it’s best to purchase points. Remember, the longer you live in your home, the more you can save on interest over the life of the loan.

    2. Interest Rate

    You are charged an interest rate when you get a mortgage. The lender charges you specific rates for using their money to buy a home. This will determine how much your monthly payments will be. To sum it up, the higher the interest rate, the higher your monthly payment.

    3. Fees

    When getting a mortgage, there will always be fees associated. These fees are actually the ones that cover the cost of processing and underwriting the loan. Fees can sometimes include more charges to ensure the title of the home is free and clear; paying for a land survey; and or paying for home appraisals which give you the estimated value of the property – this is required by lenders to close on your mortgage.

    Planning which mortgage to get may depend on what each lender does because lenders have different amounts to charge. Some may charge less closing fees to attract you, but in the end may charge you a higher interest rate, meaning you may have to pay more in the long run. But everyone has different needs; you may or may not be able to afford to pay more at closing but willing to pay more over the long term.

    Before the closing of the deal comes, make sure to do research. Make sure that there are no hidden charges and don’t hesitate to ask your lender tons of questions so that you understand all the charges and fees involved with your mortgage. It’s better to consult with your tax adviser.

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