What Prospective First-time Homeowners Should Know About Mortgages

Most people understand the basics of a home mortgage but not the details. This video introduces the four factors that impact payment and the five most common mortgage types. Together, these can be used to calculate mortgage payments and potentially save buyers money.

The first factor that impacts a mortgage payment is the cost of the home minus the downpayment (principal). The second factor is the rate at which the home loan is offered by the bank (interest). Next comes property taxes that fund local services and infrastructure.

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Finally, homeowners must pay for property insurance and additional private mortgage insurance (PMI) if a downpayment is less than 20%.

A fixed-rate mortgage has a flat interest rate throughout the mortgage period. 15 and 30-year mortgages are most common, with many buyers preferring the latter. An adjustable-rate mortgage (ARM) is fixed for an initial period and then is fixed at different rates for different periods. For example, the rate may be fixed for the first five years, while each five-year increment afterward has a different rate (a 5/5 ARM). The FHA, VA, and USDA each back the three other loans with specific requirements.

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