If financial circumstances arent working, and you are falling behind on mortgage payments, hoping the lender wont notice isnt a solution. Talking with them about loss mitigation options is better. Lenders may be able to arrange a "workout package" to help get things back on track. Mortgage loans are often "sold"; the lender who is servicing the loan — the lender to whom you send checks — has the financial interest in your situation. Talk with that lender, not the original lender. If Fannie Mae or Freddie Mac — both government-sponsored enterprises involved in mortgage lending — have acquired your loan, there are Federal guidelines that they may apply to your situation. They are not there to deal directly with borrowers (you), but they may be able to work with the lender of record to determine the loss-mitigation guidelines that best fit your situation. Be vigilant about companies that "just want to help". Look out for: Financial counseling agencies with high fees; they may be charging for advice you can get for free. Equity Skimming — companies (or individuals) who offer to repay the mortgage or sell the property if you sign over the deed. And do not sign anything related to your home until you understand it thoroughly.

Can a mortgage be paid off ahead of schedule, and is it a good idea? Those are two separate questions. Most mortgages allow early payoff, but you should make sure you understand any payoff terms or restrictions in your specific loan. Some loans have prepayment charges. People sometimes accelerate payoff by sending extra money each month, or with an extra yearly payment. If you do this, indicate in writing that the excess funds should be applied to reducing principal. Record the payments and instructions! Whether paying off ahead of schedule is in your financial interest is a complicated calculation. If you have the ability to do it, and prepayment penalties arent an issue, you will reduce the interest you pay over time. But reducing a low-interest-rate loan by taking funds from higher-interest-rate investments may not be in your interest. (Note: Payment used against principal is not tax-deductible!) Your lender is one source of advice, but financial planning for you is not their core business. If you have the option, get advice from a financial planning professional when considering something like early payoff.

Equity is a key financial and legal term, but its not taught in school. Understanding the basic concept is very much in your long-term interest! (While equity is also used as a social term, this is just about the financial and legal sense of the word.) At heart, equity is "value owned." If you have equity in a home, or a company, you legally own some part of itscurrent value. If the value of the asset goes up, that part that you own becomes more valuable. In homes and mortgages, this idea of "the part you own" and "current value" are critical. As the example in this video shows, the value of the home changes separately from the size of the loan. You might own a $300K home today, and owe $200,000 — your equity is $100,000 in the current market. If the home is valued at $600K a few years later, and your loan principal hasnt changed (unlikely, but this is just an example), your equity would be worth $400K, and youd owe $200K. As the asset (property) value goes up, or the amount owed goes down, your equity grows. Generally speaking, assets like homes tend to go up in value over time. Equity becomes a financial tool for the owner; for example, as collateral. Because home equity is usually one of the biggest assets people accumulate, it should be treated carefully. Get financial advice before treating home equity like a giant piggy bank.

Mortgage insurance is a policy that covers the lender in the case of loss. For some borrowers, the FHA (Federal Housing Authority) provides mortgage insurance. For other borrowers, a policy from a private mortgage insurer (PMI) may a better option. PMI companies usually have larger down-payment requirements and more-stringent qualification guidelines than the FHA. They may also cover loans that are large than the FHAs limits. Premiums from these lenders are often lower than FHA premiums, though. Most lenders will have guidelines and information about PMI options, for situations where mortgage insurance will be required. Ask your lender if PMI is an option for your situation.

The term "mortgage insurance" can be a bit confusing; this video might help. Mortgage insurance covers thelender, not the homebuyer, but mortgage insurance premiums are paid by the homebuyer. Confused? Read on. If a home buyer cant make a large enough down payment, the lender is taking a bigger risk that they might not be repaid. Its a silly example, but if you made a $1 down payment on a $1M dollar house, you wouldnt have a very big reason to stick around if market conditions or personal situations go bad. In general, if the down payment is under 20% of the loan (including that $1 down payment), the lender wants insurance that they will be repaid. So you, the buyer, agree to pay mortgage insurance because the lender is taking a bigger risk. If the borrower cant repay, the lender might foreclose on the property, and file a claim with the mortgage insurer for losses. If mortgage insurance comes up in your loan shopping, ask about FHA programs; there may be options that help you. If you do take a loan that requires mortgage insurance, keep track of your equity. You will probably have the option of dropping mortgage insurance when your equity is high enough.

The month-to-month home mortgage payment primarily pays off principal and interest. Many loan providers likewise consist of regional real estate taxes, homeowners insurance coverage, and home mortgage insurance coverage, if appropriate. If you are re-financing compare what is and isnt consisted of in your funding alternatives. View this video and it should make sense.

Understanding the building-blocks of a mortgage may help you compare your options. Your monthly payment is based on a complex calculation that changes over time, so "getting the picture" can be tricky! The biggest pieces are: Loan Amount Interest Rate Term (years to pay off) Payment Schedule Down Payment Equity Down payment and equity are of course closely related, but remember that your equity changes as loan payoff proceeds. This short video visualizes the way these factors relate to help you make sense of the math.

The down payment on a home affects many things — what home you can afford, loan size, financing terms and more. Getting some sense of the down payment you can afford can be difficult; people are quick to share advice from their experience, but conditions may have changed. In general, the higher the % of the purchase that you can cover in the down payment, the better the loan terms as a whole are likely to be. 5% of the home is currently the minimum down-payment amount. Keep in mind that any amount under 20% will generally require a mortgage insurance policy, which does increase borrowing costs. Keep in mind that the down payment is not the only sizable payment involved in buying a home. You will also need cash for closing expenses, moving, decorating, furnishing and possibly repairs. Check your credit history when youre sizing up down payment and loans; its also a vital part of the equation.

The term "mortgage" is commonly used to refer to the loan someone obtains to buy a home or property. Technically, the loan is one part of the arrangement. The other — the mortgage itself — is a legal claim (a "lien") that gives the lender rights to the home or property used as security, until the loan is paid off. The loan component of the financial package has two key features you should understand. Principal — the amount you are borrowing. For the lender, risk is balanced by their lien on the property. Interest — the additional amount you are paying, over time, to borrow the principal. Because mortgage loans usually take years to pay off, understanding that interest is compounded — "interest on interest" — will help you make sense of the total cost of the home. For fun — the roots of the word "mortgage" are death (mort) and pledge (gage). It captures the long-term promises involved in buying a home.

Youre ready to buy a house; how do you "Make an offer"? There is a formal process, and the real estate agent(s) will assist you. The offer will involve: Price: how much are you offering? Under what conditions? Time: when do you want to close? Move in? Financial Terms: How much are you offering in down payment? What financing details might affect the offer? Contingencies. Does the offer depend on any other events, such as the sale of your existing home? Earnest Money: what amount are you committing to show that you are in earnest about the purchase? Deadlines: how long is the offer valid? An offer will include the complete legal description of the property, and a few other formal details. Keep in mind, it is "an offer, not a deal." Buyers will frequently provide a counter-offer that changes some of the terms to meet their desired outcome.