Frequently Asked Questions about Real Estate Financing

What is Amortization?

Amortization of a mortgage refers to the process of paying off your home loan in regular monthly payments over a fixed period of time, usually 30 years.

Do you know what kind of mortgage you have? Do you know whether your payments are going to increase over time? 📈

“Amortization” is the term used for the schedule of mortgage installment payments over a period of time. Typically, a buyer’s amortization schedule is one payment per month over 15 or 30 years.

📢 Important:

📝 There are both adjustable and fixed-rate mortgages. With an adjustable rate, the lender can increase the rate on a predetermined schedule, which would impact your amortization schedule.

📝 With a fixed rate, your payments with remain the same for the life of the loan, unless you refinance or there are changes to taxes or insurance.

The equity in a home or property is the difference between how much your home is worth and how much you owe on your mortgage.

So if your home is worth $500,000 and you owe $450,000 on your mortgage, your equity in the home is $50,000.

What is a Home Equity Loan?

A home equity loan — sometimes called a second mortgage — is a loan that’s secured by your home.

Unlike a HELOC, a home equity loan is a fixed amount. You receive a lump sum of money which is often used to purchase the home. It may also be used to consolidate other debt like credit card debt, at a lower interest rate.

Refinancing a home is the process of replacing an existing mortgage with a new one that has more favorable terms. The purpose of refinancing is to achieve one or more goals, such as:

• Lowering interest rates
  This can reduce monthly payments and the overall cost of the home. Refinancing can be especially worth it if the interest rate can be lowered by 0.25%, 0.5%, 1%, or more.
• Consolidating debts
  Refinancing can allow debts to be consolidated into one loan at a lower interest rate.
• Changing the length of the loan
  Refinancing can shorten the term of the loan, such as moving from a 30-year loan to a 15-year loan.
• Switching between fixed-rate and adjustable-rate mortgages
  Refinancing can allow a homeowner to switch from a fixed-rate mortgage to an adjustable-rate mortgage (ARM) or vice versa.
• Accessing home equity
  Refinancing can allow homeowners to tap into their home equity to raise funds for home improvements, repairs, financial emergencies, or large purchases.

What is a Reverse Mortgage?

A financial agreement in which a homeowner relinquishes equity in their home in exchange for regular payments, typically to supplement retirement income. This type of loan is for adults ages 62 and older.

Should you get a reverse mortgage?

While it can be a great way to supplement your retirement income, there are some things to watch out for:

⚠️ High fees
To get and finalize your reverse mortgage, you’ll be paying a range of fees that can add up quickly.

⚠️ Variable or high-interest rate
The interest rate is often higher than that of a standard mortgage. It may also be variable, rather than fixed, which means it can increase in the future.

⚠️ Less money for your heirs
The remaining amount of your estate will need to be repaid when you’re no longer here, usually in a specific period of time, which can be costly and stressful for your family.

This is why, in some cases, downsizing can be a better option. If you’re deciding between the two, contact us to discuss your options and make the best choice for your needs.