In simplest terms, a mortgage is a loan that helps you finance a home.
The basics of mortgages.
In simplest terms, a mortgage is a loan that helps you finance a home. Your lender advances you a predetermined amount of money, which you agree to repay over a specified period of time. Here are some common terms you’ll hear:
Rates, points and loan fees
- Interest rate – The percentage of your outstanding loan balance that you pay the lender each month as part of the cost of borrowing money.
- Discount points – These allow you to "buy down" your interest rate at closing. The more points you pay, the lower your interest rate will be and the less you’ll have to pay each month. (For example, one point equals 1% of the mortgage. So on a $100,000 mortgage, one point equals $1,000.)
- Loan fees – Up-front charges to cover the cost of originating, processing and closing your loan. An origination point is a loan fee that equals 1% of your loan amount.
Your monthly mortgage payment
- Principal – The amount of money you borrow to purchase a home, and the outstanding loan balance at any point during the mortgage term.
- Interest – This is the cost of borrowing money, determined each month by your interest rate.
- Taxes – Assessed by your local government, they’ll usually be collected by your lender as part of your monthly payments and then paid annually or semi-annually on your behalf. This is also known as escrow.
- Insurance – Usually collected by your lender in an escrow account, insurance offers financial protection. There are two major components:
- Homeowner’s insurance – Also called hazard insurance, it offers protection against damage to your property caused by fire, wind or other hazards.
- Mortgage insurance – This provides partial protection to your lender in the event that you fail to repay your mortgage.
Getting the loan started.
After you find the right house or property, it’s time to secure financing. Use the full version of the Pre-Approval Application when you’re ready to apply for loan approval. You can save an incomplete application and finish it later.
How do you choose the right loan? First we suggest choosing the right lender: Wisconsin Mortgage Corporation. They’ve earned a reputation for delivering the most progressive solutions available, with skilled, experienced loan officers who put your schedule—and your needs—first.
Types of mortgages.
Fixed-rate mortgages and adjustable-rate mortgages are the two primary loan types you’ll find. Here’s what you need to know about them:
- Have interest rates that remain the same for the entire length of the loan.
- Deliver predictable monthly payments throughout the loan term.
- Protect you from rising rates, so your principal and interest payments can never increase.
- Have interest rates that adjust periodically based on market conditions.
- Offer an initial rate that is fixed for an introductory period (usually 1-10 years) and typically lower than for a fixed-rate mortgage. After that, the rate adjusts annually based on a market index.
- Allow some borrowers to qualify for a larger loan amount compared with a fixed-rate mortgage.
Government loans are available for many buyers. Insured by the federal government, they come in two types: FHA loans and VA loans.
FHA loans are backed by the Federal Housing Administration and are designed to assist homebuyers by offering low down payment requirements and flexible qualifying guidelines.
VA loans are backed by the Department of Veterans Affairs and available to qualified veterans and active-duty military personnel and their spouses. They offer many of the same benefits as FHA loans.
Learn more about the specifics of these mortgage types on our mortgage options page.
The period of time for repayment is called the term. Terms ranging from 10 to 40 years are available, with 30 years being the most common. Your monthly income and long-term financial goals usually determine the length of your term.
Longer mortgage terms offer lower monthly payments and make sense if you’re on a tight budget or you’d prefer to direct your monthly cash flow to other expenses or investments.
Shorter mortgage terms translate to higher monthly payments, but allow you to repay the loan faster and reduce the amount you pay in interest.
Have you been referred to a specific WMC loan officer?
Visit the Wisconsin Mortgage Corporation Loan Officer Selection page. All loan officers offer pre-qualifications, pre-approvals and full applications on their personal websites.
Learn more about Wisconsin Mortgage Corporation by visiting its website.