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Mortgage Guide

Understanding Your Mortgage

A mortgage is typically the largest financial commitment most people make. Understanding how interest accrues, how amortization works, and what drives your true monthly cost puts you in a far stronger position as a buyer.

How Mortgage Amortization Works

Every monthly payment is split between interest and principal. In the early years, the vast majority goes to interest — which is why your balance drops so slowly at first. Over time, as principal decreases, more of each payment goes to principal reduction. This is why 30-year mortgages cost so much more in total interest than 15-year mortgages.

PITI: Your True Monthly Cost

Your actual monthly housing cost is PITI: Principal, Interest, Taxes, and Insurance. Many buyers focus only on the P&I payment and forget that taxes and insurance can add 15–25% to the monthly figure. Always calculate PITI before deciding how much home you can afford.

15-Year vs. 30-Year Mortgage

A 15-year mortgage has a higher monthly payment but you'll pay roughly half the total interest of a 30-year loan. The 30-year gives you lower payments and cash flow flexibility — but costs significantly more over time. The right choice depends on your cash flow needs, other investment opportunities, and how long you plan to stay.

The Impact of Interest Rate

A 1% difference in rate has a surprisingly large impact over 30 years. On a $500K loan, the difference between 6.5% and 7.5% is roughly $330/month and about $120,000 in total interest. This is why shopping lenders and rate locks matter so much.

Points and Buydowns

You can pay "points" upfront to lower your interest rate. One point = 1% of the loan amount. Whether paying points makes sense depends on how long you plan to stay — the breakeven is typically 3–5 years. If you're likely to sell or refinance before then, don't pay points.

PMI: Private Mortgage Insurance

If your down payment is less than 20%, most conventional lenders require PMI — an additional cost that protects the lender. PMI typically adds 0.5–1.5% of the loan amount per year. It cancels automatically once you reach 20% equity, or you can request removal at 80% LTV.

Common Questions

Mortgage FAQ

Conventional loans typically require a minimum 620 score, with 740+ getting the best rates. FHA loans allow scores as low as 580 with 3.5% down. The difference between a 680 and 740 score can mean a 0.5–0.75% rate difference on a conventional loan — which adds up to tens of thousands of dollars over the loan term.

20% is the traditional benchmark because it avoids PMI and results in a lower monthly payment. However, many buyers put down 3–10% and accept PMI to preserve cash. The right amount depends on your emergency fund, other financial goals, and how competitive the market is.

Pre-approval is a lender's conditional commitment to lend you a specific amount based on verified income, credit, and assets. In competitive markets, making an offer without pre-approval is often pointless — sellers won't consider it. Get pre-approved before you start seriously shopping.

Shop multiple lenders — rates can vary by 0.5% or more for the same borrower. Improve your credit score, reduce your DTI ratio, and put more money down. Lock your rate when you find a good one, especially in a rising rate environment. Use a mortgage broker who can shop your profile across multiple wholesale lenders simultaneously.

Closing costs typically run 2–5% of the loan amount. They include lender fees, third-party fees (appraisal, title insurance, attorney), prepaid items (taxes, insurance), and government fees. Ask for a Loan Estimate within 3 days of applying — it will itemize all expected costs.

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