How Mortgage Payments Work

By
Real Estate Agent with Coming service

The practice of borrowing money to obtain property goes back more than 1,000 years to medieval England. At that time the law first started to codify both the rights of the lender and the rights of the borrower in such transactions. The early settlers to America brought the English system with them. But mortgages at that time were very different than today. Then a mortgage typically called for 50% down and reached maturity after a scant 5 years.

The mortgage as we currently understand it came about during the Great Depression of the 1930s. At that time down payments were cut to 20% and the repayment period greatly extended in an attempt to stimulate home sales in particular and economic activity in general. Today, the mortgage is one of the pillars of our financial system with Americans owing in excess of $15 trillion on their mortgages.

With all that mortgage debt floating around it’s inevitable that there will be people who find themselves unable to make a pending mortgage payment. Perhaps they were laid off from their job. Perhaps they encountered a significant medical expense. Or perhaps their business took a hit due to circumstances beyond their control.

Whatever the cause, however, the specter of missing a mortgage payment is not one any homeowner wants to contemplate. Fortunately, there are loans available that can enable you to avoid missing a mortgage payment. We’ll get into them in a few moments. But first a bit more about mortgages for the uninitiated.

A Quick Mortgage Primer

Monthly Payments

How much you wind up owing every month will depend on the size of the mortgage, the length of the repayment schedule and your own credit history. In most cases the longer the term (bank-speak for ‘repayment schedule’) the smaller the monthly payment. However, the longer the term the more interest you’re bound to pay as well. For instance, opting for a 35 year over a 25-year mortgage could increase the total amount of interest by nearly 50%. The moral of the story here is to put down as much as you can afford and keep the repayment period as short as practically possible.

The Principal

The principal is the money you borrow that is actually going to pay for the house. So if the house is selling for $500,000 and you put $100,000 down, then the principal is $400,000. That’s the starting point. Then on top of that, there will be interest and fees. Keep in mind that lenders take a risk when providing someone with a mortgage. Their reward for taking that risk is interest. Because they’re keen on collecting that reward ASAP your early mortgage payments will be heavy on interest and low on principal. That dynamic will slowly reverse as the years pass.

The Interest

If financial institutions were not allowed to charge interest they couldn’t exist. So interest is inevitable. The good news is that you have some control over how much interest you wind up paying on your mortgage. If you have a spotless credit history, put down 20 or even 30% and keep the repayment term as short as possible your interest payments will be much lower than if you have some black marks on your credit history, put down 5% and accept a 35-year repayment schedule.

Insurance

If your down payment is less than 20% you will be required to carry PMI insurance. PMI, or Private Mortgage Insurance, is another layer of protection for the lender. It’s necessary because lending to those who cannot make a significant down payment is riskier than lending to those who can. And that makes sense. The good news is that PMI insurance can make it possible for someone who does not have a large down payment to buy a home anyway. The bad news is that the PMI insurance will add an average of between $50 and $70 per $100,000 borrowed per month to the mortgage payment. So PMI on a $300,000 mortgage would equate to roughly $150 to $210 added to each monthly payment.

Property Taxes

Property taxes are a major source of revenue for cities and towns nationwide. They’re used to fund all manner of public services. Just how much you pay in property tax will depend on where you live. For instance, if you live in Louisiana you’ll enjoy the lowest property tax rates in the country. But if you’re buying a home in New Jersey you’ll pay the country’s highest property tax rates. You typically have the option of either paying your property taxes directly to the state once a year or the total tax due can be divided by 12 and added to each mortgage payment.

What if You Can’t Make a Mortgage Payment?

With $15 trillion in mortgages currently outstanding, there are bound to be a large number of people who find themselves, for whatever reason, facing the prospect of missing a mortgage payment. What can a homeowner do in such a case? Fortunately, loans for mortgage payments are available that will enable you to keep your house while you work your way through whatever difficulty has befallen you.

Mortgage Payment Loans

Many people go through difficult periods in their life. Often times those difficult circumstances are imposed on them by factors beyond their control. As a result, they wind up cash-starved and staring at the possibility of missing a mortgage payment. However, mortgage payment loans are available that can provide the cash people need to meet their mortgage obligations and buy time to straighten out their situation.

That said, mortgage payment loans should never be taken out on a whim. Every effort should be made to meet your mortgage payment responsibilities with the resources you have. But in the event that you cannot then an installment loan may be just the thing to bridge the gap and restore order to your finances.

How Does a Mortgage Payment Loan Work?

An installment loan to make mortgage payments is in no way the same as a payday loan. Rather, it is a personal loan provided to the borrower who agrees to repay the amount over the course of 1 to 3 years. In some cases a bit longer. The borrower will often offer a vehicle as collateral to secure the loan. People apply for this type of loan for a number of reasons. Some to pay medical bills, others to pay for cosmetic dental work and still others to spruce up around the house. This type of loan can often be applied for online. Although you’ll need to appear in person to finalize the process.

A range of factors are considered by the lender when making the loan including, but not limited to, the applicant’s credit history, employment history, and income. The lender then makes an offer to the borrower which includes the amount they are willing to lend, the interest rate at which they will lend the money, the number of installments and the monthly amount. The borrower is then free to accept those terms or decline them.

Can You Make a Mortgage Payment With a Credit Card?

Some people choose to decline the terms offered by the lending institution thinking they’ll be better off just making a payment or two with their credit card. They assume they’ll earn some rewards points. And besides, the entire process just seems a lot simpler and more attractive to them. However, before you decide to go the credit card route there are a number of things you should be aware of:

● First, making a mortgage payment with a credit card may generate significant fees.

● Some credit card networks do not allow their cards to be used to make mortgage payments.

● Others do but only allow debit or prepaid cards to be used.

● Many banks and mortgage institutions frown on the practice of using credit cards to make mortgage payments.

● Making a mortgage payment with a credit card (if you can find one that will allow it) will likely have a negative effect on your credit rating.

The Bottom Line

If you are facing the possibility of missing a mortgage payment be aware that personal installment loans are available that can help. Many homeowners in similar situations take advantage of these convenient and affordable loans as a way to avoid disruption to their mortgage repayment schedule and fend off the difficulties that would arise as a result of missing a payment.

 

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Rainer
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Sham Reddy CRS
H E R Realty, Dayton, OH - Dayton, OH
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We just have to coach our clients/custormers on strategies to get their offer accepted or countered just to keep the ball in the court. You will be suprised how attitudes change during the negotiating process

Jan 03, 2020 04:07 AM #1
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