Education & Mortgage FAQs
When it comes to mortgages, there are a lot of terms that get tossed around. Get the lingo down with our handy guide to some of the most common ones.
Mortgage Amortization Period
The amortization period is the length of time that you will spend paying off your mortgage. This time frame affects how much interest you pay over the length of your mortgage.
The standard amortization period is typically 25 years. With this option, you will need a down payment of at least 20 percent of your home’s purchase price. Depending on your down payment, shorter or longer options may also be available to you.
There are pros and cons with different amortization periods and it’s important to understand why. With a shorter amortization each mortgage payment sees more money going toward your principal balance meaning that you’ll end up owning your home out right faster and will pay less interest over the life of your mortgage. However, that also means that your regular mortgage payments are higher than with a longer amortization period.
There are a variety of reasons why lower mortgage payments may be appealing but keep in mind that lower regular payments also mean that you’ll pay more interest in the long run and build equity at a slower pace.
Annual Property Taxes
Your local municipality typically provides your community with a variety of services, such as water, garbage collection, snow removal, policing and fire protection.
Property taxes are one of the major ways that local governments pay for these types of services. How much you pay to your local government in the form of property tax varies depending on where you live.
How often you pay those taxes can also vary. For example, in some cases you may pay a lump sum each year, a quarterly sum or even monthly or biweekly amounts that coincide with your mortgage payments.
An appraisal is done to determine the market value of your home. The amount can differ from the actual purchase price. Mortgage lenders consider the appraisal value when determining the amount of loan they are willing to provide.
There are a lot of extra expenses that go into buying a home and it’s important to factor these costs in. Closing costs are associated with the final stage of a home purchase. Standard closing costs include (but aren’t limited to) things like tax prepayment adjustments, utilities, property land transfer taxes, property insurance, legal fees and more.
Closed Versus Open Mortgages
There are different types of mortgages. With a closed mortgage, a borrower must repay the principal according to the mortgage agreement. In other words, it cannot be repaid fully without having to pay a penalty. An open mortgage, on the other hand, can be repaid without penalty before a term expires. You can typically expect to pay a higher interest rate with an open mortgage than a closed one.
When you have a mortgage it means that you have borrowed money from a lender to buy your home. The interest rate indicates the rate of return that a mortgage lender receives for making those funds available to you for a specified term.
The amount that is owed to the lender is called the principal. This amount does not include interest.
A mortgage agreement between a lender and a borrower exists over a specific length of time known as a term. At the end of a term, the remainder of the principal must be paid back in full or a new mortgage agreement must be negotiated under current market rates and conditions.
Frequently Asked Questions
Buying a home is a huge step! We know that you have plenty of questions—and some of them are specific to health care professionals. Here are some of the most common ones. Have a question you don’t see answered here? Feel free to call or email us. We’re here to help!