What is a mortgage and how does it work?
A mortgage is a type of loan specifically used to purchase a home or other real estate property. When you get a mortgage, the lender provides you with the money you need to buy the property. In return, you agree to pay back this amount, along with interest and fees, over a set period—commonly 15 or 30 years. The property itself serves as collateral for the loan, which means the lender can foreclose on your home if you fail to make payments as agreed.
What are mortgage points and how do they work?
Mortgage points, also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. This practice is often referred to as “buying down the rate.” One point typically costs 1% of the total loan amount and can reduce your interest rate by about 0.25%. Buying points can save you money over the life of the loan if you plan to stay in your home for a long time.
Should I lock in my mortgage rate?
Locking in your mortgage rate means your lender guarantees a specific interest rate for a certain period while your loan application is processed, which can take up to 60 days or more. This protects you from rate increases during this period but could also prevent you from benefiting if rates fall. Consider locking in your rate if you anticipate that interest rates will rise or if you prefer the certainty of knowing exactly what your rate will be.
Why should I refinance my mortgage?
Refinancing your mortgage means replacing your current loan with a new one, often with better terms. Reasons to refinance include reducing your interest rate, lowering monthly payments, shortening your loan term, or accessing equity for large expenses. Refinancing can be beneficial if interest rates have dropped, your financial situation has improved, or you’ve built significant equity in your home.
How do I refinance my current mortgage?
To refinance your mortgage, start by checking your current credit score and home equity to see if you qualify for a better loan. Compare offers from multiple lenders to find the best rate and terms. Apply for the best option, and provide all required documentation, such as proof of income, assets, and debt. Once approved, you’ll close on the new loan, at which point your old mortgage will be paid off, and you’ll start making payments on the new one.
How do closing costs work on a mortgage?
Closing costs are fees associated with finalizing a mortgage and typically range from 2% to 5% of the loan amount. These costs can include appraisal fees, title insurance, attorney fees, and loan origination fees. The specific costs you'll pay can vary based on your location and the lender. Some closing costs can be negotiated, and occasionally, the seller may agree to pay a portion of these fees.
