Ditech : Mortgage Loan – Factors Affecting Your Payment

The amount you pay each month for your mortgage is based on a number of factors. These factors include your interest rate and term length; here is what you need to know about these two important aspects of your mortgage.

Your mortgage payment amount is determined by the amount you borrow, the term length you select, and the interest rate you choose. To understand how your mortgage is repaid you need to understand the way mortgage loans are amortized.

Amortization can be a scary word. Amortization describes the process of repaying your mortgage loan. A mortgage loan is front-loaded with interest payments. This means in the beginning of the loan you will pay more to interest than you will to repaying the principal balance of the mortgage. This is why term length is important to your loan amortization.

Mortgage loans with longer terms have lower monthly payments. This is simply because repayment is spread out over a longer period of time, such as thirty years. The downside of a thirty year mortgage versus a fifteen year mortgage is that you will pay more to borrow the same amount of money. Your mortgage lender wants their interest paid up front; with a thirty year mortgage less of your money is applied to repaying principal than with a fifteen year mortgage. This concept is easily demonstrated graphically using a good mortgage calculator such as the one found on RefiAdvisor.com.