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1074 Pittsburgh Road
Valencia PA
16059
724.898.1222
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Barry Woolner, Broker
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Other Questions
Prepayment
Chart
Mortgages
- A mortgage is a lien on real estate. In a typical real estate transaction, the
buyer borrows money and signs a note to that effect. The mortgage is the document that
attaches the note to real estate. A 'purchase money' mortgage is one where the property
purchased is the property encumbered by the mortgage.
- A fixed rate mortgage is a loan with an interest rate that does not change. The
payment remains the same for the life of the loan. If you pay extra toward the principal,
your payment will remain the same, but the term of the loan will be reduced.
- An adjustable rate mortgage is a mortgage whose interest rate can change after a
fixed number of months or years. These loans tend to become popular in times of high
interest rates. The term of the loan is usually 30 years, with the interest rate adjusting
every 1, 3 or 5 years.
Conventional loans
- A conventional loan is a loan that is not insured or guaranteed by the government. These
loans are originated by banks, savings and loans, or mortgage brokers.
Government loans
- A government loan is one that is insured and guaranteed by a branch of the government.
There are two major types of government loans: FHA and VA.
- An FHA loan is one that is insured by the Federal Housing
Administration. A typical FHA loan requires a down payment of about 2%. To induce a lender
to loan such a high percentage of the home's value, the FHA insures the lender against
default. The buyer pays for the insurance.
- A VA loan is one that is guaranteed by the Veteran's Administration. It
is available only to veterans. The veteran does not need any down payment. The closing
costs can be paid by the seller.
Other
Questions
Why is most of the mortgage payment mostly interest for
so many years?
- Your payment is computed by using factors that will allow you to pay off your loan in
the time period to which you agreed. Interest is always paid first. The balance of the
payment goes toward the principal. The interest that you pay is based on the loan balance
owed at the end of a particular month. Let us assume that you borrow $100,000 at the
interest rate of 8% for 30 years. Your payment will be $7
33.76.
The amount of interest
paid in your first payment is $666.67. ($100,000 times 8% equals $8,000 per year divided
by 12 months.)
How can I reduce the time required to pay off my loan?
- Pay more money, either monthly or annually, toward the loan. In the case of most loans,
any extra payments are used to reduce the principal owed. Before making extra payments, be
sure that your loan does not have a pre-payment penalty.
I have a 30 year mortgage. May I pay it off at any
point? May I pay something toward the principal at any time?That depends. Most mortgage loans in
Pennsylvania allow for you to prepay 'in whole or in part' the principal you owe. This
means that you are able to send partial payments to be credited toward the principal
borrowed. It also means that you can pay off the entire loan prior to the 30th year.
What loans do not allow me to pay off the principal
early?
- Typically, there are two loan categories that restrict your ability to pay off the loan.
The first involves loans that are given to good borrowers at a reduced rate of interest
(usually 1/4 per cent or so less than the going rate.) In exchange the borrower agrees to
restrict the amount that is paid toward the principal for the first few years. The second
loan category involves borrowers with credit problems. (You may have heard of "B/C
paper".) These loans usually require a higher rate of interest and usually restrict
the buyer's ability to repay the loan for the first 2 to 5 years.
If I have a prepayment penalty with my loan, am I
legally unable to pay it off?
- No. It does mean that you will pay a financial penalty to pay off the loan early.
The penalty is usually a per cent of the outstanding balance of the loan. Usually the
older the loan, the lower the per cent charged.
I have a 30 year loan. How can I
turn it into a 15 year loan?
| Interest Rate |
% added |
| 5 |
47 |
| 5.5 |
44 |
| 6 |
41 |
| 6.5 |
38 |
| 7 |
35 |
| 7.5 |
33 |
| 8 |
30 |
| 8.5 |
28 |
| 9 |
26 |
| 9.5 |
24 |
| 10 |
22 |
To change your 8% 30 year loan to a 15 year loan, simply add 30% to the principal and
interest payments.
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