With Mortgage 101, most homes in the U.S. cost several hundred thousand dollars, but most Americans don’t have anywhere near that much money sitting around, and saving it up while also paying rent somewhere can take a lifetime. Fortunately, there are people (or more accurately, companies called banks) out there who have plenty of money, and there’s a very common, win-win situation that will make it worth their while to lend you money for a house.
Let us help you qualify for a low-rate mortgage.
A person who wants money (the borrower) borrows some from a person who has it (the lender). This is called a loan. The borrower uses the money to buy what they want, then they pay the money back, plus a little extra. This extra is called interest, and is calculated as a percentage on top of the money borrowed (generally 3-6%, depending on a number of variables). This interest is the lender’s incentive for loaning the money in the first place; they make their money work so they don’t have to (which is one of the many reasons it can be fun to have a lot of money). Loans used to buy a house are called mortgages, and with most mortgages, the borrower has 10, 15, 20 or 30 years to pay back the total amount, with the 30-year mortgage being by far the most common.
Here’s an example
The average (median) home in the U.S. sells for around $200,000. In regard to Mortgage 101, the average interest rate for a 30-year mortgage–as of the beginning of 2015–was about 3.7%. So if the borrower pays 20% down, their monthly mortgage payment will be $736.45. This is fairly affordable for the average American, generally cheaper than renting a similar property, and after 30 years, they don’t have to pay any more–they own it free and clear! But the lender also makes out well, because over the course of those 30 years, they borrower will pay them $105,123 in interest! Win-win! This article discusses how different variables affect your monthly mortgage payment.
Where to get a mortgage
With Mortgage 101, it may seem like a rare thing to find someone with $160,000, or even more, that they’re willing to let you borrow for 30 years. But the truth is, one can barely walk outside and randomly throw a stale cupcake in the air without it coming down on some mortgage broker or banker actively looking for someone they can lend money to. They’re everywhere!
Of course, before you get on the hook for such a huge commitment, you’ll want to make sure you’re not getting sold a bad loan. There’s a huge incentive (money!) for greedy lenders to rope you in to deals where you’re paying too much, or where you could get some surprises that wind up costing you your home. In 2008, many Americans wound up getting foreclosed on because they had inadvertently bought a bad mortgage from a “predatory lender”. Mortgage agreements, like any contract, are printed on plain white paper, but they’re stacked so thick they can stop a bullet. And the language is so thick it can stop your brain. Make sure your lender is reputable, comes highly recommended, and has your best interests in mind. Remember, lenders make over $100,000 on a very average mortgage. There’s plenty of money to be made honestly. But that doesn’t stop the bad apples from getting greedy now and then.