A mortgage is a long-term loan that a borrower obtains from a bank, a loan company, an independent mortgage broker, a money-lender, or some other money-salesman. The borrower signs documents (many of them) at closing that basically promises the house to the lender if they borrower does not pay the loan according to schedule. You give the loan company the right to foreclose on your home if you do not pay. They have a lien against the title of your home.
Because mortgage loans are usually very large, people often take a very long time to repay them. Historically, loans either came in 15 and 30 year term lengths. That is, over the course of 30 years a borrow returns all the money to the lender as well as interest. When the loan is paid off, the bank releases the lien on your property.
Often the monthly payment not only includes interest payments and small amount of loan principle, but also payments to an escrow account for property taxes and insurance. The bank wants to make sure that "their" asset is protected against government seizure and hazards like flood and fire. So, they take these payments up front. The advantage is that you do not have to worry about large tax or insurance bills coming due. The bank will take care of these payments for you. Also, if your mortgage was not a conventional loan, a loan in which you paid 20% down payment, you may be subject to PMI payments. The bank will also collect this fee in your monthly mortgage payment.
So, if your mortgage payment is $2000 dollars per month, the majority of that payment goes to interest, taxes, and fees. Only a small portion actually goes towards paying off your principle... the original amount of the loan. It pays to be a bank!
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Mortgage rates, although not at their lowest levels, are still extremely attractive according to historical standards. Rates were lower only once before, and that was 40 years ago. Even if the economy were not to grow much for several years like Japan, rates are not expected to go any lower. So, if you are thinking of refinancing, and have not done it for several years, now is the time!
Mortgage rates go up and down, usually on par with the Federal Reserve's interest rate. If the FED is raising rates, you can bet that mortgage rates will go up too. However, mortgage rates are heavily influenced by inflation. If inflation is increasing, mortgage rates will increase too. If the economy looks to be improving and growth is imminent, then mortgage rates will likely rise also. There are economics courses that focus on mortgage rates as it can be a very complex topic.
Current Mortgage Rates for Open, Long Term, Closed, Adjustable & Fixed Mortgage Loan - Click here for Canadian Mortgage Loan Rate available with various mortgage lenders including banks in Canada.
Mortgage calculators are used to help consumers find the true monthly price of loans. You can find several mortgage calculators on the Internet that can instantly give you a good idea about the costs for a new loan payment or the true savings with refinancing. Find the correct calculator for your needs, input your balance, monthly payments, interest rate, tax rate, and other fees, and you should get a relatively accurate monthly cost. Sometimes refinancing your loan is not a profitable exercise, other times you can save thousands of dollars. It all depends on the numbers. A mortgage calculator can be very helpful in this process.
Amortization is the repayment of a loan through monthly installments of principal and interest. This payment is based on a timetable such that by the end of the period (example 30 years) the entire loan will be paid off. There are also many amortization calculators available that will graph out exactly how much money you pay each year towards principle and interest. It is a very enlightening to see how much extra payments save you in interest payments over the life of your loan.
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