What a New Home Owner Should Know About Mortgages

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If you are a first time home buyer who is thinking about getting a mortgage, there is a lot of information you need to know, including everything about your mortgage and the process of buying a home. However, it is also important to know what to do after the transaction is completed, and you are the proud owner of a new home, and a new loan worth several hundred thousand dollars.

First time buyers usually read up on information about choosing a home, selecting the best mortgage, and negotiating interest rates, among other things. However, many tend to forget about the reality of monthly mortgage repayments in all the excitement of home ownership.

The reality is that although loan servicing, the period between closing and the time at which the loan is fully repaid, is the last thing that home buyers will go through, it is also the longest stage in the process of getting a mortgage. Loan servicing can last thirty years or more, but it is the stage that many people just do not think about until they have already bought their house.

The loan servicing period means that the lender or their representative ensures that not only mortgage repayments, but also following up if payments are missed, and ensuring that all the insurance and taxes owing in connection to the house are paid on time and in full. Other servicing activities include notifying you of interest rate changes if you have an adjustable rate mortgage, and processing loan payments.

There is plenty to think about during this lengthy period known as the loan process. Below are a three points that are good to know about before you get a loan.

Private Mortgage Insurance

If your down-payment on a property is less than the usual amount, it is likely that your lender will ask that you pay private mortgage insurance. This is completely normal, and serves as a further layer of protection for the lender if you miss payments and end up defaulting on the loan. As the borrower, it is your responsibility to pay for private mortgage insurance, which typically costs around 0.5% of the total loan amount annually.

Many people do not realize that they can cancel the insurance as soon as they have twenty percent equity in the home, and lenders do not have to cancel the insurance until that figure reaches twenty two percent. However, your lender is required by law to tell you up front the point at which twenty percent will be reached. It is definitely a date to mark on the calendar!

What Happens if you Miss a Payment?

Making mortgage payments on schedule is important, but missing a payment or two is not the end of the world, as long as you tell your lender before it happens. Your lender is most likely willing to extend forbearance as long as they know in advance that you are going to miss one, or even two, payments. Extending forbearance means that your mortgage lender will help you find a solution to a temporary financial problem that prevents you from making mortgage payments on time. One common solution is to temporarily reduce the amount you pay each month and make the money up later, or skip making two or three payments altogether, and repay the money that is owed once your financial situation eases.

Other options, such as a “partial claim,” are possible in more dire situations. If you have missed between four and twelve payments, and you meet other eligibility requirements, you may be able to obtain a HUD loan that will cover the money owed on the mortgage.

So there are several options available to you if you run into unforeseen problems making your payments. The key is making sure your lender knows well in advance, as the longer you ignore the problem, the fewer the options you have for a solution.

What Happens if your Mortgage is Sold to Another Lender?

Many home owners have never heard of the secondary mortgage market, and most do not even know such a thing exists unless it affects them. This secondary market is a national market in which mortgages are traded between originators (the lenders that lend mortgage money to home buyers) and investors, who buy mortgages as long-term investments. Many originating lenders actually use the secondary mortgage market as a way of generating new funds to make new mortgages, and the secondary market is one way in which an added element of competition in the market helps keep interest rates down.

The most important thing to know is that if your mortgage is sold on the secondary market, very little will change for you personally. The terms and conditions of your mortgage will stay exactly the same. In almost all situations, the only thing that changes is that you will send your mortgage payments to a new address, but your original lender will let you know the details when they notify you that your mortgage has been sold.

Ryan Anderson is a freelance writer who writes about topics and pertaining to the mortgage industry such as refinancing home mortgage.