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Mortgages and Home Loans

Mortgages and Home Loans. How to buy a house that you can afford…. Key Terms. Mortgage – home loan PMI – Private mortgage insurance Mortgage broker – a person who lends money for home loans APR – annual percentage rate (interest) Term – length of loan repayment Rate – same as APR

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Mortgages and Home Loans

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  1. Mortgages and Home Loans How to buy a house that you can afford…

  2. Key Terms • Mortgage – home loan • PMI – Private mortgage insurance • Mortgage broker – a person who lends money for home loans • APR – annual percentage rate (interest) • Term – length of loan repayment • Rate – same as APR • ARM – adjustable rate mortgage (aka variable rate) • Fixed Rate – constant APR

  3. Types of Home Loans • Terms – most home loans vary from 15-30 years • More recently, home loans have been made available for 50 years (stay away) • Interest rates will be lower on shorter term loans • Most first-time homebuyers will have a 30 year mortgage

  4. Fixed vs. ARM • Fixed Rate Mortgage – same interest rate throughout the entire duration of your home loan (6% at year 1, 6% at year 30) • ARM – adjustable rate mortgage • The interest rate will adjust depending on the current economy the Federal reserve interest rates • Most of the time, this rate will increase as time goes on • This allows people to buy homes and get lower monthly payments for the first 1-5 years • CAUTION!!! Just because you can afford an ARM payment in the beginning, doesn’t mean you can afford it if the rate goes up in 5 years • Rarely would it benefit someone to get an adjustable rate mortgage

  5. APR – Annual Percentage Rate • Interest rates vary, but the standard interest rate is based off of the interest rate that the Federal Reserve sets • This rate would usually be for someone with excellent credit • Most introductory rates for home loans are between 6-7% • As your credit gets better and you owe less on your house, you can REFINANCE with a new loan and interest rate

  6. PMI • Private Mortgage Insurance • Required for people who borrow more than 80% of their home’s value • Example: • Value of House: $300,000 • Down Payment: $20,000 • Loan Amount : $280,000 • Percent borrowed: 93% • PMI must be paid until you have paid off 13% more of your loan

  7. PMI Calculation • In the LTV column, you find the percentage that corresponds with your loan    (with 5% down, it is 95%) • Follow this row across to the column for your type of mortgage. (this is a 30 yr fixed) • Locate your rate ( for this example it is .78)Next, multiply your loan amount by the rate to get the annual PMI costLoan amount: $150,000Rate: .78$150,000 x .78% or $150,000 x .0078 = $1170 per yearFinally, divide the annual rate by 12 to get your monthly paymentDivide $1170 by 12 (months) = $97.50 per month

  8. Homeowners Insurance • Average Homeowners Insurance is based on the value of your home, the location, and items inside your home • .6-.8% average • Premiums increase dramatically if you live in hurricane prone areas, beaches, flood zones, or places where wild fires occur • Calculate your annual homeowners cost and divide by 12 to find out how much you will pay per month • $ value of home x .006-.008 / 12

  9. Maryland Property Taxes • Property taxes are assessed by local governments (like counties) • Rates change by county • Based on a percentage of your home’s total monetary value • Average Rate - 1.014% • Find out what that annual property tax will be for your home ($ value x .01014) / 12

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