How Do Mortgages Work? (Simple!)

Barry Rabinovitz

Monday, October 17, 2016

A mortgage is a loan from a lender to buy a piece of real property (house, land, etc.).

The interest on the mortgage is the percentage of money the borrower agrees to pay the lender each year, in return for lending the money.

To make the loan affordable, the interest is spread out over time (amortization).

Amortization = the amount of money that goes toward principal (the amount of the loan) & interest. It changes over time because interest owed is spread over time.

Perhaps your monthly payment could be MORE than just principal and interest (PITI Payment).

PITI = Principal -- the loan balance Interest -- interest owed on that balance.

•Real Estate Taxes -- govt. agencies assess for school construction, fire department service, etc.

•Property Insurance -- insurance coverage against theft, fire, hurricanes and other disasters.

•Your monthly payment may also include other fees such as private mortgage insurance (PMI).

There’s a LOT to know about mortgages beyond the rate! Talk to a mortgage professional to make sure you fully understand your payment options!

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