02
Dec
By First Rate Financial Group
Home Mortgage Tips

Understanding ‘PITI’ and What Goes in to Your Monthly Payments

Understanding 'PITI' and What Goes in to Your Monthly PaymentsAsk any friend or family member that owns a home and they will share that it takes a bit of management to keep all the expenses under control. Let’s explore the concept of PITI and why it is vital to have a clear picture of how much your home is costing you each month.

Just What Is PITI, Anyway?

PITI is an acronym that stands for “principal, interest, taxes and insurance,” which are the four main components that make up your housing costs.

Principal – this is the amount that you are paying against the total amount that you borrowed when you purchased the home. For example, if you used a mortgage to cover $200,000 of the home’s purchase price, the remaining balance of that $200,000 is the principal. A part of your monthly mortgage payment goes to paying down the principal.

Interest – this is the extra cost that the lender charges for the service of lending you the principal amount. For most mortgages, you will see this expressed as an “interest rate” which is a small percent charged on the loan. A portion of your monthly mortgage payment goes to paying down the interest owed.

Taxes – tax costs are not included in your monthly mortgage payment, but will be added by your lender as part of your yearly expenses when calculating your debt-to-income ratio (see below). Property taxes and other assessments will need to be paid each year.

Insurance – this is the cost of insuring your mortgage and your home. Like taxes, your mortgage lender will typically include some insurance costs in your DTI ratio calculation.

How Lenders Use PITI

Many mortgage lenders use some form of PITI calculation when determining your debt-to-income ratio. This ratio helps the lender understand your ability to manage your monthly mortgage payments without being at risk of missing one. The lower the ratio, the more likely you can afford all your monthly expenses.

Don’t Forget Your Other Monthly Expenses

Finally, don’t forget that along with PITI you will have a variety of other monthly expenses that need to be budgeted for. Leave some space for utilities, repairs and other renovations that need to be made throughout the year.

Once you have the full picture of what is coming in and going out each month, managing your expenses is easy. When you are ready to discuss or apply for a mortgage, get in touch with us. Our friendly team of mortgage professionals is happy to help.

18
Nov
By First Rate Financial Group
Home Mortgage Tips

3 Ways That a Reverse Mortgage Can Transform Your Retirement

3 Ways That a Reverse Mortgage Can Transform Your RetirementAre you a retired individual looking for ways to increase your financial security? If so, you may have heard of a home equity conversion mortgage, more commonly known as a reverse mortgage. Used correctly, this is one of the most effective financial products for retirees who own their home.

Let’s explore three ways that a reverse mortgage can help to transform a dull retirement into one filled with excitement.

It’s All About Flexibility

The primary benefit that one receives with a reverse mortgage is financial flexibility. It is an excellent way to tap into the equity that has built up in your home over time without having to sell the house and move out. Moreover, unlike a traditional home loan, the payment terms are far more flexible. In many cases, payments are not required until you are ready to leave the home permanently.

An Extra Source Of Income

Is your lifestyle starting to suffer because you do not have a regular salary coming in for you and your partner? Regardless of how much you have saved in 401-k and other retirement accounts, losing that regular monthly income can be depressing.

The good news: a reverse mortgage can help to change that. The funds you receive can be used however you want. You can invest in renovations for your home, take a nice vacation, invest in the stock market or simply leave it in your bank account. It is a helpful ‘bridge’ income source that will ensure that you have no trouble taking care of life’s many expenses.

A Contingency Fund, Just ‘In Case’

Finally, a reverse mortgage can be an excellent contingency fund. If you take this out as a line of credit, the money will be available if and when it is needed. Many retired individuals lack a financial ‘safety net’ and end up suffering due to unexpected health issues or other costs. With a reverse mortgage, you can sleep soundly knowing that emergency cash is there if needed.

As you can see, taking advantage of a reverse mortgage can be the catalyst that helps take your retirement to the next level. To learn more about these unique financial products, contact us today. We are happy to share how a reverse mortgage can benefit you and your family.

15
Nov
By First Rate Financial Group
Home Mortgage Tips

Mortgage 101: How Interest-Only Mortgages Work and Why They’re A Good Solution for Some Buyers

Mortgage 101: How Interest-Only Mortgages Work and Why They're A Good Solution for Some BuyersWhether you’re a first-time homebuyer or an experienced real estate investor, if you are planning to borrow funds to buy a home you will want to choose the right mortgage product. In today’s blog post we’ll explore how interest-only mortgages work and why they’re the perfect choice for some homebuyers.

How Interest-Only Mortgages Differ From Conventional Ones

As the name suggests, interest-only mortgages are loans where you are only required to pay off the interest portion of the loan each month for some specific term. The length of these loans can be up to ten years, although five or seven is the most common. Once this period is over, you will have some options. Some choose to refinance their mortgage into a new term; others will make a lump-sum payment to pay off the balance. The most important item of note is that during the interest-only period, no principal is paid off unless you pay a bit extra.

The Pros And Cons Of Interest-Only Mortgages

Interest-only mortgages are a popular choice because of their many upsides. Your monthly payments are almost certainly going to be far lower during the interest-only period. This is because you’re not responsible for paying down the principal of the loan. A lower monthly payment frees up money that you can use for other purposes, such as investing. Also, your entire monthly payment during the interest-only period should be tax deductible, which may contribute to a refund each year.

Note that there are some potential downsides to interest-only mortgages as well. For example, if your mortgage interest rate is adjustable, you can end up paying more in interest than if you had locked in. You also need to stay disciplined financially. Once the interest-only period ends, your monthly payment may increase significantly to cover both interest and principal.

Who Should Consider An Interest-Only Mortgage?

Interest-only mortgages are a good fit for those individuals or families where you are confident that your income is going to grow significantly in five or ten years. Alternatively, if your income is somewhat sporadic and you want the option of paying lower payments in some months and more substantial payments in others. The key point is that these mortgages offer flexibility that other mortgage products do not.

As you can see, interest-only mortgages are an excellent choice in certain circumstances. To learn more about how an interest-only mortgage might be right for you, contact our professional mortgage team today. We are happy to share our experience to find mortgage financing that perfectly suits your needs.