"[I]f he doth not pay, then the Land which is put in pledge upon condition for the payment of the money, is taken from him for ever, and so dead to him upon condition, &c. And if he doth pay the money, then the pledge is dead as to the Tenant."-- Edward Coke's Commentaries on the Laws of England.
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There's a good chance that you have engaged in a "dead pledge." That's the literaltranslation, from Old French, of the word "mortgage" -- as mortgages were seen as often lasting until death. Here are 12 more mortgage facts that might surprise you.
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The lowest mortgage interest rate was really low: In late 2012, averageinterest rates for a 30-year fixed-rate mortgage hit 3.31%. Rates for15-year loans sank below 3%. (Clearly, our recent rates near4.3% are still quite low, historically speaking.)
The highest mortgage interest rate was really high: In late 1981, the average interest rate for a 30-year fixed-rate loan hit18.45%! To appreciate what a difference your home loan's interest rate makes, check out the table below for monthly payments on a $200,000 30-year fixed-rate loan for a $250,000 home:
Source: Bankrate.com mortgage calculator.
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Mortgage rates can be quite volatile: Don't assume that rates only change slowly. We may be used to the low rates that have been around for more than a decade, but consider that in 1987, rates rangedfrom about 9.1% to about 11.4%, and in 1994, they ranged from about 7.2% to about 9.4%.
A little shopping around can yield very different rates: You might assume that the current average interest rate is what you'll be offered, but that's not true. Different lenders will offer different rates. A recent check at Bankrate.com yielded rates for someone with a good credit score in Rhode Island borrowing $200,000 in a 30-year fixed-rate loan that rangedfrom 4.03% to 4.56%. That can amount to a difference of about $60 per month.
Paying $100 more per month can shave five years off your loan: You probably know you can make extra payments to build equity and reduce your debt more quickly, but did you know just how powerful doing so can be? Check out the following table:
Source: Author calculations at mtgprofessor.com.
You can automate paying your mortgage: It's a great idea to do so, too. You can set up automatic money transfers from your bank account or paycheck to go directly to your mortgage servicer. This removes the risk that you'll forget to pay a bill or will run out of money when the bill comes due.
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You can get a mortgage paying little to nothing down: You might not want to, though. Check out VA loans or USDA Rural Development loans (which apply to lots of not-so-rural areas near cities), as they offer mortgages with $0 down payments. Conventional mortgages backed by Fannie Mae or Freddie Mac may allow you down payments of as little as 3%, while Federal Housing Administration (FHA) loans are available with only 3.5% down. These can mean the difference between buying a home and not being able to, but understand that you'll be starting out with little to no equity and if the home's value falls, you'll owe more than it's worth.
Your mortgage may be sold: It's now very common for you to take out a mortgage with one lender only to have it sold to another company. The other company or your original lender may service your loan, collecting your payments. Having your loan sold is not necessarily a bad thing, but it might be an unsettling surprise, especially if you wanted to remain with your original lender. Fear not -- the new servicer will be required to honor the terms of the loan.
A good credit score can save you thousands of dollars: You probably don't fully appreciate just how much a low credit score can keep you from being offered great interest rates. Check out the table below, which reflects recent rates for someone borrowing $200,000 via a 30-year fixed-rate mortgage. Moving from one score group to another can save or lose you close to $10,000 or more -- so spend some time looking into how you might raise your score.
Data source: MyFICO.com,as of early March 2017.
Your loan's APR rate is good to know: Every loan has an interest rate, which can help you compare loans. But loans can have very different closing costs, making the overall amount you pay in interest and fees and costs very different. So compare annual percentage rates (APRs) when shopping for a good mortgage. The APR reflects the true cost of your loan.
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Your assets are less valuable than you think: If you have little income but have a million dollars in the bank, don't assume that it will be smooth sailing getting pre-approved and finally cleared for a mortgage. Lenders care much more about your income than your assets, because they want to be confident that you'll be able to make your monthly payments. They look at your debt-to-income ratio, comparing all that you owe (on credit cards, in car loans, etc.) with what you bring in and don't want to see the former overshadowing the latter.
Lenders can overestimate how much home you can buy: Don't let a lender tell you how much house can you afford to buy. Crunch your own numbers, and be sure to leave a big margin of error for unanticipated developments such as job losses, income reductions, or health crises. A conservative estimate that has you living well below your means will help you sleep at night and reach more financial goals, such as retirement savings.
The more you learn about mortgages, the more money you might save -- and the more fascinating you'll be at parties, too!
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