Understanding Mortgages Before You Get a Mortgage

The modern mortgage market offers a variety of mortgage loans catering to the needs of homebuyers. The titles and details of these plans can become confusing, especially as new types are introduced continuously. You can make sense of these loan types, however, if you understand the basic principles that govern all mortgage loans. Again, you can look to your real estate professional for assistance.

What to know about lending and mortgages before you buy

Basic Principles of all Mortgage Loans

• The home is used as security to back up the loan. A lender can force sale of the home if the borrower defaults by failing to make scheduled payments.
  
• The larger the loan compared to the value of the home, the more risky for the lender and, often, the more expensive the loan will be.
  
• Interest earned by the lender always is equal to the periodic interest rate times the outstanding principle balance of the loan. The periodic interest rate is the annual interest rate divided by the number of payments in the year (usually one per month).
  
• The required payment usually is a bit larger than the interest due so that some of the loan principal is repaid with each payment. This process is called Amortization and is why most mortgage loans can be retired when all the monthly payments have been made.
  

All mortgage loans have one of the following features:

• Fixed payment and fixed interest rate - fixed rate mortgages
  
• Fixed rate but variable payment - graduated payment mortgages
  
• Variable rate and variable payment - adjustable rate mortgages

As you learn more about the types of financing available, you will notice that some loans appear to have more favorable terms. That may indicate that those loans are, indeed, bargains (and it does pay to shop around), but usually it means that those loans could have some feature that is less appealing to borrowers. For example, shorter-term loans often have slightly lower interest rates compared to longer-term loans. However, the monthly payment for the same amount of principal may be higher because of the shorter term. Variable rate loans usually have much lower interest rates to compensate for the risk the borrower accepts that interest rates will rise in the future.

Holding On to the Mortgage You Already Have

Learn What You Can Do To Protect Your Home

• If you feel like you may be in danger of facing foreclosure and need immediate help, call 888-995-HOPE or visit www.995hope.org. Homeowner's HOPE™, a counseling service provided by the Homeownership Preservation Foundation, can work with you to find a solution.
• How to Avoid Foreclosures and Keep Your Home (PDF: 1.7Mb)
  You're not alone if you're having trouble paying your mortgage. The housing boom led to a record homeownership rate of nearly 70 percent, but some home owners now face problems making their mortgage payments and can't refinance their loans. This brochure will help you understand your options and give you tips on how to avoid losing your home--regardless of what kind of mortgage you have. Text-only version available (PDF: 71Kb)
  
• How to avoid foreclosures (HUD)
  
• Foreclosure Assistance Programs by State
  
• Help for Homeowners Facing the Loss of Their Home (HUD)

Credit Counseling is Available

• HUD Housing Counselors: A list of counseling agencies by state
• NeighborWorks® America: Find a NeighborWorks® counseling organization in your community
  Under a partnership with NeighborWorks® America, NAR is a founding sponsor of the NeighborWorks® Center for Homeownership Education and Counseling (NCHEC). NCHEC's mission is to work with industry partners to train, certify, and support home buyer educators and housing counselors nationwide.
  

NAR's Position on Subprime Lending

Above everything else remember you're not alone. This can happen to anyone anywhere. Please don't be too embarassed to seek help.

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