Each month, about 4 million U.S. homeowners and loan shoppers go to Google for answers to their top mortgage questions. So in part one of this blog, we covered the first five most popular mortgage search queries on Google. Here are the next results of the top 10 Googled questions about mortgages – with our comprehensive answers!
- How can I pay down my mortgage faster?
Currently, about 20 million homeowners in the U.S. are mortgage free, which means the rest of us 66 million homeowners are writing checks for mortgage payments every month. But there are very smart and efficient ways to pay down your mortgage much faster than 30 years, becoming free of a house payment.
The mortgage payments you make are front-loaded with interest, but you can pay it down much faster with a little planning and minor sacrifice. The trick is to allocate more money to your mortgage than just the amount required – but the key is to do it early.
If you look at a schedule of your total payoff to $0 over 30 years (called amortization), you’ll notice that the first payments are almost all interest to the bank. That means that half of your payment won’t be going to pay off principal until around year 10 for most mortgage holders!
Assuming you’ve got a $300,000 loan amount set at 4.5% on a 30-year fixed mortgage, even an extra $100 payment would save you $34,086 over the full loan term and shorten your mortgage by 3 years, 7 months.
How about if you could swing an extra $500 every month? You’d be saving a whopping $107,912 and shorten your mortgage by 11 years and 10 months!
You can use a system of bi-monthly payments, rounded your payment check up to a higher number, or make one extra payment per year, but any way you do it, paying extra towards your mortgage in the beginning will pay off huge down the road.
- How much will my closing costs be?
When you’re buying or selling a home, there are a lot of people working hard for you to make sure the transaction goes smoothly, is error free, and to safeguard your best interests. They include appraisers, banks, home inspectors, loan officers, title and escrow staff, and many more. The fees for the various services inherent with the purchase or sale of a house are collectively called, closing costs.
It’s estimated that closing costs usually account for around 3-5% of the purchase price of the house when you’re a buyer though those costs could fluctuate based on your situation (like if you’re taking out a mortgage to buy the property or just paying cash.) The good thing is that when you buy a home, your Realtor’s commission is paid for by the seller, which is usually 2.5%-3%.
When you are selling your home you take on paying both commissions – for your realtor and for the realtor who brought you a buyer and represents them. But of course you don’t need to pay for a mortgage loan when selling or any of those costs.
Like we mentioned, closing costs vary from place to place and based on the individual situation. For example, some states use separate title and escrow companies, some use combined title & escrow firms, and some use real estate attorneys, instead. But the here is an explanation of the typical closings costs you’ll see in most residential real estate transactions. Other factors that adjust the amount you’ll pay in closing costs include points, origination, application, appraisal, credit report, processing, underwriting, and escrow fees, as well as title insurance, transfer taxes, title company costs, etc. Your lender will go over your closing costs in detail, and even put them in writing very quickly in the mortgage application process so you can review and understand all of these fair and standard charges.
- What are mortgage points and should I pay them?
Mortgage points, or discount points, are a way to effectively buy down your interest rate. For instance, a mortgage points might cost 1% of the mortgage value in some cases, and each point you buy could possibly knock 0.25% off your interest rate. But those variables often change depending on the lender, the interest rate, and the loan product, so it’s best to check with us for options as we’re initially setting up your loan.
Paying “points” when you first get a loan makes a lot of financial sense for some people, since they’ll be paying far less total interest over the life of the loan, saving tens of thousands of dollars or more. But if you plan on refinancing or selling within a few years, paying those points may be a waste of money. By getting in touch with a great mortgage broker or lender, you’ll be able to easily go over the options for points and their savings, and calculate your BEP, or Break Even Point, that will illustrate when and if it makes sense.
- What is a preapproval?
The term ‘preapproved’ has several meanings, but ultimately falls short of the only thing that matters – that you ‘re approved and can close on a certain loan. Getting preapproved is most used in conjunction with real estate offers, where the sellers and other agent will want to be sure that you have started the loan process and a mortgage broker or loan officer has reviewed all of your documentation, and sees no reason why you wouldn’t be able to qualify for that loan.
To become preapproved, you’ll need to submit all of the documentation requested by the lender for the underwriter, such as W-2 forms from the previous two years, a profit and loss statement or 1099 if you are self employed or make commission, your most recent paycheck stubs, bank statements, and federal tax return, as well as having your credit report pulled so your debts and credit score can be factored in.
- What will my mortgage payment be?
That’s a great question! It’s a simple process to figure out what your monthly payment will be. The answer is based on:
- Your loan amount (remember this will be most likely be less than the purchase price or value of the home)
- The interest rate
- The loan term (30 year or 15 year loan, etc.)
But while it’s simple to plug in these numbers to any loan calculator online, the only way to make sure you know what your payment will be is to talk to a lender and start the loan approval process. There are so many factors that can change your payment, such as the APR, interest-only loan options, if it’s a government loan, if you have to pay mortgage insurance, and of course what your property taxes, insurance, and closing costs will be.
Most of the online calculators can’t or won’t be able to tell you all of those things, so contact us instead for a quick rundown of what your payments might look like with a new loan!
Bonus frequently Googled question:
“How can I get the best possible interest rate on my mortgage?”
Contact us for some great information and inside mortgage tips that will allow you to get the lowest possible interest rate and payment on your home loan!