Top  Consumer Mortgage Questions
By: Gust Lenglet

            Whether it is your first home or your fiftieth it can be very intimidating to sign on the dotted line for a mortgage, and there are a number of mortgage questions that financial experts frequently hear from anxious borrowers. Whether your mortgage question is included in the ones listed below or not, recognize that it’s important. If you don’t find your mortgage question addressed below be sure to take the time to speak with your lender before signing on the dotted line.  

1)       What is the difference between a fixed-rate and an adjustable mortgage?

With a fixed-rate mortgage your interest rate will remain the same throughout the course of your loan, whether it is for five years or thirty. The interest on an adjustable rate mortgage will change depending on a variety of factors. Adjustable rate mortgages offer the potential for the interest rate to drop as time goes by, but they also present the risk of an increasing monthly payment farther down the road.

2)       What does it mean to “lock-in” a mortgage?

Since the housing market swings so dramatically mortgage rates can vary from day to day. When you “lock in” your mortgage you are ensuring that you will retain the current rate, even if it changes an hour later. For example, if you locked in at 6% and the rates rose to 8% the following day you would still be able to keep your 6% interest rate.

3)       How much money do I have to put down?

This is one of the most common mortgage questions asked by consumers, made more difficult by the fact that there is no “cookie cutter” answer. The amount of money that you are going to be asked to put down on your new property is going to vary according to the policies of your financial institution. In general, however, homebuyers are expected to be able to put 10-20 % of the final cost of the house down before taking out a loan.

This number is not set in stone. HUD loans and those that are backed by private mortgage insurance often require as little as 3% up front. If you are concerned that you may not be able to afford your down payment talk to your lender and find out what your options are.

4)       What other fees are included when a mortgage is signed?

When you sign a mortgage you are agreeing to pay three major expenses:

a)       Earnest money-The deposit that you pay when you submit an offer on a house to prove your intent to the seller. This amount is going to vary according to the seller and generally ranges from 1-3% of the market price of the property. If your offer is refused your deposit will be returned to you.

b)       Down payment-This is the percentage of the final cost that you are going to pay up front to help keep down the cost of your loan. As mentioned earlier, the amount of the required down payment is going to vary according to your lender. The greater the down payment the less money you will have to borrow, keeping your monthly payments as low as possible.

c)       Closing costs-Closing costs are the various fees associated with the paperwork required to officially close the deal and generally range from 3%-5% of your total cost.

5)       What is negative amortization?

Negative amortization is what happens when the home buyer makes a mortgage payment that is less that the accrued interest owed and the difference is tacked onto the loan balance. When this occurs your loan balance will rise rather than fall with each payment.

6)       What happens if I pay off my mortgage early?

Some companies may actually penalize you for paying off your mortgage early, since they are losing out on the interest. Check with your personal lender to find out what their policies are.

7)       What happens if I miss a payment?

Generally you will be expected to make a double payment the following month. You may or may not be charged a late fee, depending on your financial institution. Missing too many payments may result in your home being foreclosed upon, so it is important you let your lender know as soon as possible if you are not going to be able to afford a monthly payment. Most companies are willing to work with you if you contact them early. Believe it or not, they’d rather get their money than foreclose on your house!

8)       What if I can’t afford a full down payment?

Of all the mortgage questions this may be the one that’s asked the most often, particularly in areas where housing costs are continuing to rise without an accompanying salary increase by area employers. There are a number of special loans available for home buyers who aren’t able to afford a 10-20% down payment. You may qualify for one of the federal mortgage programs currently in operation, or you may be able to obtain a loan with a 3-5% down payment and private mortgage insurance.

9)       What is Private Mortgage Insurance?

This is an insurance program intended to protect lenders if a borrower chooses to default on a loan. Home buyers who have less than 20% available to put down as a down payment will usually be required to purchase private mortgage insurance.

Gust Lenglet is an accomplished author in the field of personal finance and home budgeting. He is the CEO of Crown Financial Concepts, Ltd. where you can get timely and valuable advice on creating a personal or household budget.