1. Mortgages and Home Loans How to buy a house that you can afford…

2. Key Terms Mortgage – home loan PMI – Private mortgage insurance Mortgage broker – a person who lends money for home loans APR – annual percentage rate (interest) Term – length of loan repayment Rate – same as APR ARM – adjustable rate mortgage (aka variable rate) Fixed Rate – constant APR

3. Types of Home Loans Terms – most home loans vary from 15-30 years More recently, home loans have been made available for 50 years (stay away) Interest rates will be lower on shorter term loans Most first-time homebuyers will have a 30 year mortgage

4. Fixed vs. ARM Fixed Rate Mortgage – same interest rate throughout the entire duration of your home loan (6% at year 1, 6% at year 30) ARM – adjustable rate mortgage –The interest rate will adjust depending on the current economy the Federal reserve interest rates –Most of the time, this rate will increase as time goes on –This allows people to buy homes and get lower monthly payments for the first 1-5 years –CAUTION!!! Just because you can afford an ARM payment in the beginning, doesn’t mean you can afford it if the rate goes up in 5 years –Rarely would it benefit someone to get an adjustable rate mortgage

5. APR – Annual Percentage Rate Interest rates vary, but the standard interest rate is based off of the interest rate that the Federal Reserve sets This rate would usually be for someone with excellent credit Most introductory rates for home loans are between 6-7% As your credit gets better and you owe less on your house, you can REFINANCE with a new loan and interest rate

6. PMI Private Mortgage Insurance Required for people who borrow more than 80% of their home’s value Example: –Value of House: $300,000 –Down Payment: $20,000 –Loan Amount : $280,000 –Percent borrowed: 93% –PMI must be paid until you have paid off 13% more of your loan

7. PMI Calculation In the LTV column, you find the percentage that corresponds with your loan (with 5% down, it is 95%) Follow this row across to the column for your type of mortgage. (this is a 30 yr fixed) Locate your rate ( for this example it is.78) Next, multiply your loan amount by the rate to get the annual PMI cost Loan amount: $150,000 Rate:.78 $150,000 x.78% or $150,000 x.0078 = $1170 per year Finally, divide the annual rate by 12 to get your monthly payment Divide $1170 by 12 (months) = $97.50 per month Percentage BorrowedPMI Rate for 30-year mortgage 80-85%.32% 85.1-90%.52% 90.1-95%.78% 95.1-100%.90%

8. Homeowners Insurance Average Homeowners Insurance is based on the value of your home, the location, and items inside your home.6-.8% average Premiums increase dramatically if you live in hurricane prone areas, beaches, flood zones, or places where wild fires occur Calculate your annual homeowners cost and divide by 12 to find out how much you will pay per month $ value of home x.006-.008 / 12

9. Maryland Property Taxes Property taxes are assessed by local governments (like counties) Rates change by county Based on a percentage of your home’s total monetary value Average Rate - 1.014% Find out what that annual property tax will be for your home ($ value x.01014) / 12