Know the Mortgage Basics

Article provided by Charlie Van Zant, Home Mortgage Consultant, Wells Fargo

Maybe you're one of the thousands of Americans who bought their first home this year, or maybe you're an experienced buyer who purchased their tenth home. Either way, a refresher on the ins and outs of home financing can help keep you feeling comfortable with your new purchase.

Knowing what you're paying with each payment as well as how your mortgage works over time are important ways to keeping a handle on what is likely your largest investment. If any questions pop up regarding your home financing, feel free to contact your Wells Fargo Home Mortgage consultant and they can provide you with the answers you're searching for.

What's Happening To Your Loan Balance When You Make A Payment?

If you have a traditional mortgage loan (most common), your monthly payment includes a principal amount, which reduce~ your outstanding loan balance, as well as interest and most likely taxes and insurance (commonly referred to as PITI).

Another fact you should know about your monthly mortgage payment is that an additional payment in one month doesn't allow you to pay less than your regular payment the following month. For example, if your monthly mortgage payment is $1,000 and you pay $1,250 in April, you can't pay $750 in May and consider your payments up-to-date. Usually that additional $250 is applied as an additional reduction to your outstanding loan balance, so you'll still need to send in a full payment of $1,000 in May.

Going away for an extended time and want to prepay multiple months on your mortgage, without the additional funds being applied to principal? Then call the customer service number on your monthly mortgage statement ahead of time and determine how to arrange that with your lender. Better yet, of course, is enrolling in a monthly automatic payment plan so your payment is made while you're away. Ask your home mortgage consultant about the convenient and free Preferred Payment Plan^SM options from 'Wells Fargo Home Mortgage, which can help you pay down your mortgage faster and pay less interest over time¹.

Even Fixed-rate Mortgage Payments Change

One of the chief benefits of a fixed-rate loan is that your monthly principal and interest payment won't change, no matter what happens to interest rates. But that doesn't mean that your monthly mortgage payment will remained fixed at its current level for the entire term of your loan. That's because, as discussed above, most monthly mortgage payments include more than just principal and interest - they often include amounts for insurance and taxes - for which payments may vary each year.

If your monthly mortgage payment includes amounts for insurance and property taxes, your lender will put these funds in an escrow account, which they'll use to make property tax and insurance payments on your behalf (often twice a year). So while you should monitor the inflow and outflow of funds to your escrow account to ensure your obligations are being met, you generally won't need to worry about making these payments as long as you make your monthly mortgage payment on time.

But as taxes and insurance premiums rise (and, occasionally, fall), the pro-rated amount in your monthly mortgage payment will need to adjust. So periodically, the amount of your monthly mortgage payment may be changed to balance the inflow into your escrow account.

Stay In The Know

The best way to keep a handle on your home financing is to learn more about the specific details of your loan. If you've read something that has piqued your interest or generated any questions about your home loan, then feel free to contact your Wells Fargo Home Mortgage consultant. They can answer any questions and would be happy to help you understand more about your investment now and its impact on your future.