Mortgage Loan Tips & Advice

What is a Mortgage?

A mortgage is a secured loan used to purchase real estate, where the property serves as collateral. This allows lenders to offer lower interest rates compared to unsecured loans, but they can foreclose on the property if you default on payments.

Common Mortgage Types

Fixed vs Adjustable Rate Mortgages

Fixed-rate mortgages maintain the same interest rate throughout the loan term, while adjustable-rate mortgages (ARMs) have rates that can change after an initial period.

Check and Improve Your Credit Score

Your credit score significantly impacts your mortgage rate and loan approval. Even small improvements can save thousands over the life of your loan.

Calculate Your Debt-to-Income Ratio

Lenders use your debt-to-income (DTI) ratio to determine how much you can borrow. Most prefer a DTI of 43% or lower, including your new mortgage payment.

Save for Down Payment and Closing Costs

While some loans require as little as 3% down, a larger down payment reduces your monthly payment and eliminates private mortgage insurance (PMI). Also budget for closing costs.

Get Pre-approved from Multiple Lenders

Pre-approval gives you a clear budget and shows sellers you're a serious buyer. Compare offers from multiple lenders to ensure you get the best rate and terms.

Understand Points and Rate Buydowns

Mortgage points allow you to "buy down" your interest rate by paying extra upfront. Each point typically costs 1% of the loan amount and reduces the rate by 0.25%.

Lock Your Interest Rate

Interest rates can change daily. Once you've found a good rate, consider locking it in to protect against increases while your loan is being processed.

Principal, Interest, Taxes, and Insurance (PITI)

Your monthly mortgage payment includes more than just principal and interest. Most lenders require you to escrow property taxes and insurance as well.

Private Mortgage Insurance (PMI)

PMI is required on conventional loans with less than 20% down payment. It protects the lender if you default but adds to your monthly cost until you reach 20% equity.

Closing Costs Breakdown

Closing costs typically range from 2-5% of the loan amount and include various fees for processing, underwriting, and transferring ownership of the property.

15-Year vs 30-Year Mortgage Comparison

The most common mortgage terms are 15 and 30 years. Shorter terms offer significant interest savings but require higher monthly payments.

Real Example: $300,000 Loan Comparison

Here's how much difference loan term makes on a $300,000 mortgage:

Making Extra Principal Payments

If you can't afford a 15-year mortgage, consider making extra principal payments on a 30-year loan. Even small extra payments can save significant interest and time.

Rate and Term Refinancing

Refinancing can make sense when rates drop significantly, your credit improves, or you want to change your loan term. Generally, a 0.75% rate reduction justifies refinancing costs.

Cash-Out Refinancing

Cash-out refinancing allows you to borrow against your home equity, but it increases your loan balance and typically comes with slightly higher rates.

Not Shopping Around for Rates

Many borrowers accept the first mortgage offer they receive. Shopping with multiple lenders can save thousands over the life of your loan.

Buying Too Much House

Just because you qualify for a certain amount doesn't mean you should borrow that much. Consider your other financial goals and potential life changes.

Ignoring the Total Cost

Focusing only on monthly payments can lead to poor decisions. Consider the total interest cost, especially when choosing between loan terms or paying points.