For 90% of us buying a home, the traditional mortgage loan is the optimal instrument for borrowing money against our new abode. For all intents and purposes, money is lent to the borrower by a financial institution that has determined your home’s value through a property appraisal. Similar to taking a loan out on a vehicle, the mortgage is constructed in a manner that allows you to “pay back” the money used to purchase your home from the seller in monthly “installments”, over a pre-defined period (typically measured in years of 15, 20 and 30). The principle and interest, or “P&I”, is the primary payment you make towards the balance on your mortgage and is comprised of two components of your mortgage. You guessed it; “Principle” and “Interest”! The principle pays down the balance on your mortgage, while the interest pays the financing costs for the money you borrowed. You may hear the terms “cheap money” and “dear money” from mortgage loan specialists when referring to mortgage rates, etc. When interest rates are low, money is “cheap” because you are paying less per month to borrow the same dollar than you would be paying when money is “dear” or expensive. Either way, there is no such thing as a “free lunch”!
I’m Jeff James, welcome!
February 26, 2021