Understanding your Home Mortgage Loan Agreement

Lenders lay out all their terms in detailed legal language in the home mortgage loan agreement. When you, the borrower, sign the agreement, you’re promising to repay the loan. Make sure to read your loan documents carefully and undersnad them. If it is your first time doing this, do your research and talk to experts or your real estate broker. Four basic areas are covered in the mortgage agreement.

LOAN AMOUNT
The amount you borrow is called the principal. Usually, home buyers borrow the difference between the down payment and the sales price, but if you don’t have enough cash to pay the up-front fees, some lenders will add that to loan amount.

COST OF THE LOAN
The mortgage agreement will specify the:
– Interest rate you’ve agreed to pay;
– Total amount you will repay.

REPAYMENT TERMS
A few factors go into a loan repaid.
Length of time. Is it a fifteen, twenty, or thirty year loan.
Frequency of payments. You repay the loan installments. Are you making payments once a month or twice a month?
Variability. Are these payments fixed or will they be adjusted periodically? For adjustable mortgages, the agreement will specify if they are adjusted periodically, how it will be calculated, how much it can fluctuate up or down, what the minimum and maximum amount could be, and when any adjustments will occur.

FAILURE TO REPAY
If you fail to keep your end of the bargain and default on your loan, your lender may force you to repay the full amount immediately or the lender may sell your home. Laws vary from state to state, but in general, you’re considered to have defaulted on a loan if you:
– Are often over thirty days late with payments;
– Don’t maintain your house, causing the property value to drop.
Lender don’t want to force you out of your home or be stuck trying to get back their money by selling (foreclosing on)your house. If you’re honest with the lender, you may be able to arrange a compromise payment plan.

OTHER THINGS TO KNOW
– Most lenders allow you to make payments ahead of schedule, called prepayments. They may limit how much you can prepay or some may charge penalties. In many states, however, lenders are prohibited from restricting your prepayments.
– If you default on your loan and you owe more than your home is worth, your lender may sell your house, take the money, and reduce the principal owed to sales price. This is called a short pay-off. The amount of the reduction is taxable to you. In some states, the lender may still be permitted to sure you for the difference.