Real Estate

Taking Out Mortgages and Property-Related Loans

Closing In on Closing Costs

When finally securing a mortgage on a property, the prospective buyer comes to a settlement meeting or closing. At this settlement meeting, the borrower has to deal with any closing costs or other terms. A closing in money-speak is when all the papers are finally signed, the promises are officially and formally made, and the buyers get to move their stuff into their building or build on their newly acquired property.

Dealing with down payments

A down payment is a certain percentage of the amount being paid for a building. The greater the down payment, the less to be paid back later — which in turn reduces the amount that needs to be paid in interest over the years.

Paying down using points

In the mortgage world, points represent additional money that’s paid to the lender at the time of the closing. The more points you pay, the more you can lower the interest rate. The amounts of the points are percentages of the amount of the loan. For example, 2.5 points translate into 2.5% of the loan amount. And each point you pay on a 30-year loan reduces your interest rate by about one-eighth of a percentage point.

Considering appraisal fees

An independent appraiser (someone not connected to the lender or the borrower) determines the market value of a building or piece of property. That appraiser charges an appraisal fee for her work. The fee usually depends on the price of the building. For instance, assume that the appraiser in the example (at the beginning of the section) charges a flat fee of $200 plus $25 for each $10,000 the home costs in excess of $200,000. So for the building that costs $300,000, the $25 extra is charged on $100,000 — which is 10 multiples of $10,000. So the charge is $200 + 10($25) = $200 + 250 = $450

Prorating property tax

Property taxes are generally collected by the local governing body once or twice each year. The seller of property owes taxes for the number of days or months he owned the property during a particular tax period, and the buyer owes taxes on the remainder of the tax period. To split up the tax liability fairly, you have to deal with some prorating. For instance, if a property tax payment is due on September 30 and the closing is earlier in the year on April 10, the buyer is responsible for the property taxes from April 10 through September 30, and the seller is responsible for the previous months.

Amortizing Loans with Three Different Methods

An amortized loan is one in which regular, set payments are made and the interest on the loan is figured on what’s left to be repaid. Even though the principal (the amount still owed) is decreasing, the payment stays the same, because that payment is more of an averaging-out of all the payments — from when the principal is at the highest until the loan is almost completely repaid. You can determine the monthly payment of an amortized loan using an online calculator, a table of values, or a good, old-fashioned formula. I explain each of these methods in the following sections

Taking advantage of online calculators

An online calculator is a handy tool for figuring out mortgage payments. The beauty of online calculators is that they take all the mystery and scariness out of computing mortgage payments, mortgage interest, points, and so on.

Most financial institutions with Web sites offer you the convenience of doing computations using their particular calculator. You enter the amount of the loan and any other pertinent information, and the calculator will almost immediately produce the payment amount and interest rates available. You can play around with the numbers — see what happens if you want to borrow more or make a bigger down payment. You get to do your homework before actually going to the institution to arrange for a loan

Last thought

You can use an online calculator or a set of tables to find a particular mortgage payment. But sometimes you may want to do your own calculating with a simple, scientific calculator and the appropriate formula. I show you how in this section.

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