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Mortgage Principal Explained

by Sandi Pressley

When you get a mortgage to buy a home in Albuquerque, you are taking out a long-term loan. Mortgages are used to finance the purchase of a home. As well as repaying your principal, you make interest payments to your lender. Your house and land serve as collateral for the loan. A mortgage consists of two basic components: principal and interest. The following sections describe what they are and how they impact you as a borrower.

What is a Principal Payment?

As a borrower, you will initially borrow a certain amount of money, which is called the principal. You calculate your principal by subtracting the final selling price of your home from your down payment. Your budget and how much home you can afford are determined largely by your principal. 

As soon as you borrow money, interest begins to accrue. Mortgages are typically paid in monthly installments over a 15- or 30-year period. The outstanding principal on your mortgage refers to how much you still owe.

Interest on a Mortgage

Mortgages don't just require you to pay the principal each month. You also pay interest. A lender charges you interest to let you borrow money. The interest rate is determined by a percentage. The money you pay each month goes toward your principal and interest, and the two are combined into a single payment to your lender.

Does Your Mortgage Principal Change?

With most home loans, your monthly payments don't change despite paying down your principal over time. However, you will end up paying less interest over time. 3% of a smaller remaining principal, for example, is going to cost you less than 3% of your entire principal when your loan is processed. Even though your payments remain the same, you're putting more toward your principal. 

Payment changes could occur on rare occasions. Getting an adjustable-rate mortgage is one example. Home loans come in two varieties. The first is adjustable-rate and the second is fixed-rate. Your interest rate will remain the same throughout the term of your loan if you take out a fixed-rate loan. A variable-rate mortgage has periodic rate changes. If the rate goes up, so do your monthly payments.

After you get enough equity in your home, your lender will cancel your private mortgage insurance, so your payment may change.

Refinancing means replacing your old mortgage with a new one. Therefore, you'll have a new interest rate, monthly payment, and term length on the new one. When you refinance, your principal could change, but it doesn't have to.

Last but not least, you can pay more toward your mortgage than the minimum. You can either make a monthly payment or a lump sum payment. When you make extra payments, you reduce your principal, so you can pay less in interest every month.

When you reduce how much you pay in interest, you get lower monthly payments.

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Contact us today to help you buy or sell your next home in Albuquerque. Looking for the perfect home for sale in Albuquerque? Our easy-to-use home search tool can help you start the process. Join us twice a week on our blog for more real estate advice and great reasons to buy a home in Albuquerque and the surrounding area. Follow us on Facebook for the latest Albuquerque real estate updates.

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Mortgage Scams and How to Avoid Them

by Sandi Pressley

When you buy a home in Albuquerque, the last thing you need to worry about is being scammed. Yet, mortgage scams are an unfortunate reality that has victimized thousands of people. Over 11,000 people reported being scammed when financing a home in 2018 alone. And to make matters worse, scammers are getting more and more creative about how they steal your money. Scammers are also notoriously hard to catch, as many operate outside the country.

Here are two of the main ways that scammers have stolen money from home buyers and how you can protect yourself.

Escrow Wire Fraud

How it happens: Someone sends you an email claiming to be from your title or escrow company. The email contains instructions on where to wire funds. There will usually be a fake website that looks like the real website of your title or lending company. The scammers will use other tactics to deceive you, such as making phone numbers, websites and email addresses appear familiar, but one number or letter is off, which is an easy thing to miss at first glance.

You then follow the instructions and wire the money. Except in this case, the money goes to an offshore account, and the scammers have your money. At this point, there is almost nothing that can be done to get it back, since it's not on American soil.

How to protect yourself: Protecting yourself is simple. If you get any email with instructions on wiring money, ALWAYS call your real estate agent. Never click on email or text links, or send money online, without verifying wire instructions with a live person on the phone from a number that you’ve called and verified.

Also beware of any email or text that requests a change to wiring instructions you already were given. Always confirm the escrow account number before wiring money, and call your settlement agent to verify the transfer of the funds immediately after you’re done.

Loan flipping

How it happens: Loan flipping is when a predatory lender persuades a homeowner to refinance their mortgage repeatedly, often borrowing more money each time. The scammer charges high fees and points with each transaction, and homeowners get stuck with higher loan payments they can’t afford after being duped into borrowing most of their home’s equity.

Seniors with memory impairment are especially vulnerable to these scams because they have significant home equity and may not realize they’re being taken advantage of. Predatory lenders convince homeowners they can help them find a better loan product or use a cash-out refinance to pay for home renovations to make their homes more accessible as they age in place.

How to protect yourself: Elderly homeowners in Albuquerque who have cognitive issues should involve a trusted relative or friend in any key financial discussion, especially about tapping home equity. If you’ve recently completed mortgage refinance, it’s usually not in your best interest to do another transaction right away.

If predatory lenders are actively seeking you out and you haven’t requested their help, that’s another warning sign that something is off. Work only with known banks or lenders, and question all fees and penalties presented to you. Lenders are required to provide loan estimates and closing disclosures that list all fees and third-party costs, so make sure to review these documents carefully, or have a trusted adviser do this.

Join us twice a week on our blog for more real estate advice and great reasons to buy a home in Albuquerque and the surrounding area. Follow us on Facebook for the latest Albuquerque real estate updates. Looking for the perfect home for sale in Albuquerque? Our easy-to-use home search tool can help you start the process. Contact us today to help you buy or sell your next home in Albuquerque.

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The Sandi Pressley Team
Coldwell Banker Legacy
10400 Academy Rd. NE Suite 100
Albuquerque NM 87111
505-980-2999
505-263-2173 / 505 293-3700
Fax: 505-212-0729

Quick links to this site are also SandiSells.net or SandiSellsHomes.com