Getting a mortgage has a significant effect on your finances and your life. For this reason, it is important to understand how a mortgage works before you sign on the dotted line. For example, you may wonder if you must pay taxes on a mortgage, if it will affect your credit rating and whether you can pay it early without a penalty. To help you increase your understanding of mortgage-related issues, here are answers to some of the most frequently-asked mortgage questions.
1. How does a mortgage affect my credit rating?
When you apply for a mortgage and take on new debt, your credit rating may drop. Before your mortgage application can be processed, the lender must pull your credit report, which results in a hard inquiry. In addition, adding a new debt to your record may alter your debt-to-income ratio unfavorably. However, over time, making regular mortgage payments can improve your score, as long as you are never more than 30 days late.
2. How does my mortgage affect my taxes?
You are not typically required to pay taxes on a mortgage. However, you may qualify for certain deductions because of your mortgage, such as the mortgage interest deduction.
3. How is my mortgage payment calculated?
Your mortgage payment includes several distinct factors: principal, interest, property taxes and homeowner’s insurance. The values of each of these components will determine your mortgage payment. If any of these factors change, your mortgage payment will change as well.
4. Can I pay my mortgage early?
In most cases, you will be able to make extra payments toward your mortgage balance and/or pay it off early without a penalty. However, some mortgages do carry pre-payment penalty, so read your documents carefully to determine whether these payments apply to you.
5. How do I apply for my first mortgage?
If you have never applied for a mortgage before, the best way to get started is to contact a reputable lender. Please call Starboard Financial today to discuss the process and/or begin your application.