Wednesday, August 28, 2013

Getting a Mortgage Education

We took out the mortgage on our first home in 2008, just before the bottom of the housing market fell out and the financial crisis started in full.  I’ve heard a lot of blame put on the banks for not presenting enough information about mortgages during this time, but I’m somewhat surprised by this.  I tend to wonder just how much effort many people made to actually inform themselves regarding mortgage matters and make use of informational materials made available by lending institutions.

Maybe we were just lucky, but we received plenty of information about our mortgage and what responsibility we were undertaking by committing to such a financial agreement.

Mortgage Disclosure Book
Yes, we were actually provided with an entire disclosure book, and this was in 2007, before the housing market collapse and foreclosures in mass numbers began.  This book outlined associated loan fees, discussed appraisal information, went over insurance requirements, reviewed a variety of loan types -- even giving examples of how adjustable rate mortgages could be affected by rate increases -- and provided a borrower’s bill of rights and a “consumer caution and home ownership counseling notice”!

In the back part of the book, there were even a few additional packets explaining adjustable rate mortgages. 

Good Faith Estimate
Our lending institution also provided us with a good faith estimate before we took on our mortgage that gave us a general idea of what the breakdown of costs would be for our loan.

Not only did this estimate provide a breakdown of mortgage and mortgage-related fees, but it gave us a monthly payment analysis, general loan information such as term, rate, amount, and type of loan, and a “funds to close summary” that gave us an estimated total of how much money we would need to bring to closing.

Mortgage Calculator and Amortization
Finally, it really helped to become familiar with our mortgage to see exactly what we would be paying over time as well as a total amount paid once our mortgage timeframe was complete.  Using a lender provided amortization sheet, enabled us to see a payment-by-payment breakdown of principal versus interest over the entirety of our loan.  Then, by using an Internet mortgage calculator, we could manipulate our mortgage to see what would happen if we paid more over time in an effort to reduce total interest owed on our loan by decreasing the payoff time.

With all these tools at our disposal, we felt comfortable with the loan we were taking on and were well informed regarding the financial responsibility we were undertaking with the purchase of our home.

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