A mortgage is a secured loan used to finance the purchase of your home. A mortgage, being a secured loan, uses the house as collateral. In this sense, the lender holds possession of the home while you reside in the home and continue to make payments. If you default on payments, the mortgage lender may take the property as their rightful ownership until you have paid off the loan in full.
Mortgage rates are always changing, rising, and falling with the market. See Money FCU’s latest mortgage rates online with OwnersChoice Funding, our preferred mortgage lender. Our mortgage rates are incredibly competitive with other mortgage lenders. Additionally, you get the advantage of working with a local lender who knows the local market.
Most mortgage rates posted are in the benchmark 30-year conventional loan with a fixed mortgage rate. The 30-year fixed loan type is the most popular mortgage type, but other mortgage options are available. Shorter term loans provide a lower interest rate.
The general best practice rule of thumb for figuring out mortgage financing is the 28/36 rule. This rule suggests that a borrower should not exceed 28% of your gross monthly income (pre-tax income) on the cost of the home. Keep in mind that a mortgage payment needs to include principal, interest, escrow for taxes, and homeowners insurance.
For example, if your gross monthly income is $5,000, and the rule says your mortgage payment shouldn’t exceed 28% of that number, your payment should be no more than $1,400. ($5,000 x 0.28 = $1,400.)
Additionally, you are cautioned not to exceed 36% of your gross monthly income on all total household debts combined, including your mortgage. This percentage is referred to as your debt-to-income ratio. Banks and credit unions may use this number to determine how risky it is to lend to you.
For example, if your gross monthly income is $5,000, and the rule says your total household debts, including the mortgage, shouldn’t exceed 36% of that number, your total monthly payments shouldn’t exceed $1,800. ($5,000 x 0.36 = $1,800.) So if you have $500 in existing debt payments (car loan, credit card, etc.), your mortgage payment shouldn’t exceed $1,300 ($1,800 – $500.)
You’re encouraged to consider all your finances and see which formula you’re more comfortable with. Ideally, in this example, your mortgage payment should fall between $1,300-$1,400.
You can also use a mortgage calculator to figure your monthly payment and make sure your choices fit your budget.