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What Does A Mortgage Really Cost?

Unpacking the Mortgage Payment

What you’re actually paying for….

What does a Mortgage really cost?

Looking to buy a home? Browse all currently available Louisiana Homes now.

When you are buying a home, whether it’s your first time or your 15th, finances are ALWAYS a concern. How much is it going to cost you each month? What about taxes? How do you get the best deal and lowest payment?

Just like any other large purchase (car or boat), homeowners are expected to pay monthly towards their loan, PLUS INTEREST, pay for insurance, and pay taxes annually. But don’t worry, MOST lenders lump all of these items together into one single payment to make things easy.

Each month, a portion of the following homeowner necessities will be paid:

  • Principal, or the total amount of money you borrowed from your lender. If your loan was for $250k, your principal is $250k. The monthly payment toward your principal doesn’t usually change (unless you refinance, but that’s another wine wednesday) and is contingent upon your down payment and the total life of the loan.
  • Interest, or the fee you pay your lender for borrowing money. The interest rate on your loan varies based on market conditions at the time your interest rate is locked and can also be impacted by your personal credit history and other factors. (be sure to check out previous episodes to hear our prediction of interest rates for 2018)
    • It’s important to note that there are two interest rate options for homebuyers – fixed-rate mortgage (aka FRM) and adjustable-rate mortgage (aka ARM). If you opt for a FRM, your interest rate will not change for the life of the loan, even if market rates go up or down over the years.
    • If you opt for an ARM, your interest rates are fixed for a period of time as stated in your loan documents (usually five years) and then the rate can change based on the current market. This means your monthly mortgage payment could also increase or decrease at each adjustment interval.
  • Taxes, which are levied by the government and based on the value of your property. Each year, your property is assessed and payment is due. If you opt to include your property tax in your monthly mortgage payment, your annual bill will be divided into 12 payments, collected each month, held in escrow by your mortgage company until your taxes are due and paid on your behalf.
    • Keep in mind: If the value of your home changes over the years, your monthly mortgage payment may increase or decrease. Your mortgage lender or servicer will notify you of any changes.
  • Insurance, which protects your property in the event of a disaster or an accident. Like property taxes, your monthly insurance payments can be collected and held in escrow and paid to your insurance company directly by your mortgage company. Generally, your insurance payment stays the same over the years, but changes in your coverage could impact your monthly mortgage payment. If you haven’t shopped your homeowners or flood insurance in a while, give us a call at 985-778-2525 and we can connect you with the best in the business.

Closing on your home loan

When it comes to actually buying a home…

When you speak to lender and get pre-qualified for a loan, your lender will provide you with a good faith estimate, which is a breakdown of approximate costs of the loan to help you get an idea of what your monthly cost will be at a certain price point. After you have found your dream home and are going to closing, at least three days before you close on your mortgage loan, your lender will provide a Closing Disclosure (CD) for your review. This document outlines the terms of your loan – including a breakdown of your monthly payment and an overview of your closing costs.

What are closing costs? They’re a one-time charge paid at closing that covers the processing of your loan. It includes fees for things like appraisals, credit reports, IRS transcripts, escrow fees, titles and attorneys.

Knowledge is power, so take the time to review your CD carefully and understand the initial and long-term costs of your loan before you sign the dotted line.

Remember to rely on your mortgage lender along the way and they’ll help you understand the financial responsibilities involved as you close the deal on your dream home.

If you are ready to find your dream home, give us a call today 985-778-2525 or contact us below.

Looking to buy a home? Browse all currently available Louisiana Homes now.

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