(ThyBlackMan.com) Mortgage is a word many are familiar with. However, for people who may not understand what it means, a mortgage is a type of loan used to purchase or maintain a property usually a house or land. In contrast to other loans, the property purchased with the loan serves as a guarantee or collateral for a mortgage.
When it comes to getting a mortgage loan, discrepancy persists just as it does in most other areas of a Black’s life. A survey quoted by Black Enterprise reported that mortgage denial rate for Black was 84% when compared with their White counterparts in 2020, a period when the world was frantically dealing with the coronavirus pandemic.
This is more disturbing because it was happening at a time when many homeowners were leveraging the rising value of properties to increase their wealth.
Meanwhile, the lucky few Blacks that were able to get a mortgage were not excepted from discrimination. An analysis by University of California and Berkeley researchers of 7 million 30-year mortgages disclosed that Black and Latino’s applicants were charged on average 0.08% higher interest.
While the struggle for racial equality continues, it is important to equip oneself with the right knowledge.
Types of mortgage
There are three common types of mortgages. The loan term may span for as long as 40 years.
Fixed-rate mortgage
Just like the name implies, the interest rate on the mortgage does not change till the end of its term. It is the most common type of mortgage and this has earned it the name, traditional mortgage.
Adjustable Rate Mortgage (ARM)
The interest rate is fixed only for a specific period of the total term of the mortgage. As the terms of the loan lengthen, it may increase or decrease, but there is usually a clause that would tie the increase to specific figure(s) and the total interest at the end of the loan is usually fixed.
Reverse mortgage
It is typically secured on already owned property. Applicants must be 62 years or older. As part of the mortgage, some of the homeowner’s equity is converted into cash, and the repayment period is extended until the borrower’s death or relocation.
Mortgage process
There are specific criteria an individual must fulfil to be qualified for a mortgage. When seeking a mortgage, it is advisable to apply to more than one lender to increase the chances of getting a Yes. Some documents that may be required to evaluate a borrower’s eligibility include:
- Bank statement
- Proof of employment
- Tax returns
- Credit rating
Mortgage approval can be before securing a property or while still shopping for one. Mortgage approved in the case of the latter is known as a pre-approval mortgage. The equivalent amount of the mortgage approved is usually released directly to the seller during closing. The deal is closed when the buyer and seller have agreed on the terms.
How to calculate mortgage rate and repayment plan
Mortgage type would determine its rate. To calculate the rate:
Determine the mortgage principal: This is the total initial mortgage. For instance, if a property is worth $300,000 and the borrower covered $100,000 of the total cost, then the mortgage principal is $200,000.
Repayment interest: Mortgage (except Reverse Mortgage) are usually repaid monthly. Calculate the interest the lender is demanding. For a 5% interest fixed mortgage of 10 years, the monthly interest on repayment would be 0.005%.
Calculate loan term: Note the total number of months you are expected to use for the repayment. A mortgage of 10 years with a monthly repayment plan will span 120 months.
Research property taxes in your area: Mortgage repayment usually contains property taxes that the lender receives and saves into a designated account referred to as an impound account or in some cases, escrow. The total taxes at the end of the repayment is remitted to the government on the borrower’s behalf. It is important to research the property taxes in the area where the property is located.
To compare mortgage rates offered by lenders to decide the best, an online mortgage calculator can help. A reverse mortgage on a property worth $345,000 with an existing mortgage of $1,345 in Alaska for someone born in 1961 based on this calculator would worth about $146,111.
5 things to consider before applying for a mortgage
Below are some things to consider before shopping for a mortgage to finance your dream home:
Income
Income is very paramount as the repayment for a mortgage would likely be deducted from it. The recurrent expenses for the month such as feeding and provision for dependents must first be calculated. Then, decide if the remaining cash would suffice in funding the mortgage. People seeking a reverse mortgage may not worry about this.
Mortgage insurance
This can be avoided by making most of the down payment for the property. In the case of a reverse mortgage, it reduces the total amount that would be repaid and thus, easier to sell the house if need be. Heirs will also find it easier to repay in case of death.
Credit score
The better the credit score, the lower the interest rate demanded by the lender is more likely to be.
Lender fees
Some lenders may charge auxiliary fees that could be avoided by going with another one with a better offer. Closing costs charged by most lenders may include application fees, the cost of getting your credit score and the appraisal fee for the property. These fees are usually one time.
Cost of property
This is more important for preapproval mortgage. Buying a property higher than the amount stipulated by the mortgage may tank the deal. This can only work if the borrower is willing to pay a higher down payment or the property is haggled to a lower price.
Staff Writer; Greg Carter
