Mortgages are important for people who want to live out the dream of owning their own home via Central Florida Property Management – American Dream Homes. Only the wealthy are able to buy a house without taking out a loan. Mortgages make it possible for everyday people to enjoy home ownership.
Mortgages generally cover the home as well as the land the home is built on. The home and the land are used as collateral to secure the loan. If you decide not to pay your mortgage every month, the bank can choose to default on the loan and sell the land and house to help cover the payments that were missed.
Every mortgage has two distinct parts which are the interest and the principal. The interest you pay is based on your interest rate and the amount of principal remaining on your loan. The principal is the actual amount of money you currently owe. At the beginning of your mortgage, your principal will be higher, which makes the monthly interest charged higher. This means you will be paying down very little principal when you first begin a mortgage, most of your monthly payment will go to cover interest accrued. On the other hand, at the end of the mortgage, your payments will go towards principal mostly as the balance is worn down. This process is known as amortization.
Putting down more money when you buy a house is the best way to secure the lowest possible interest rate. People who put down a high percentage of a home are considered to be less of a risk, which allows the bank to offer a better rate. If you put less than 20% down on your house, the bank may consider your loan to be riskier and will require an escrow account which means you will be paying the bank for insurance and taxes and in turn, they will pay them when they are due. This protects the banks from owing money for taxes and insurance on your home if you should decide to default on your loan.