Mortgage - FAQ - – Rockford’s News Leader

Mortgage - FAQ

"I've never purchased a home before. What do I do?"

Do you have a home ownership dream?  As the stateline's premier retail mortgage lender, First National Bank has the products and experience to make that dream a reality.  Call today to set up an appointment with a Mortgage Specialist who will guide you through the entire home financing process.

"I already own a home, but would like to refinance my existing mortgage. What do I do?"

First National Bank provides a wide array of mortgage products to meet a variety of home financing needs.  The Mortgage Specialists at First National Bank have the expertise to analyze your mortgage and identify ways to save you money on your monthly payment.  Call today or apply online at to begin the refinancing process.

What is a mortgage?

A mortgage is a loan secured by real estate.  If you are buying a home, you will likely need a mortgage to manage the cost.  Your lender pays the price of the home in full, and you pay the lender back over an extended period of time.  What distinguishes a mortgage from a typical loan is that your home serves as collateral, ensuring that you repay the funds you've borrowed.

Though there are various types of mortgages, they all share the same basic components:

  1. Principal
  2. Interest rate
  3. Term

The principal is the amount you initially borrow to pay for your home.  The interest rate is a percent of the principal that your lender charges for the borrowed funds.  Interest rates fluctuate based on a variety of factors, including inflation, the pace of economic growth, and Federal Reserve policy.  The term is the length of time it will take to fully amortize, or pay off, the loan.  The principal, interest rate, and term all affect the size of your monthly payments.

The composition of your monthly payments will vary depending on the type of mortgage you choose; however, your payment will typically consist of principal and interest as mentioned above, in addition to taxes and insurance.  Initial mortgage payments consist primarily of interest, but gradually the amount of principal in each payment rises.  The more principal you have paid, the more equity you have in your home.  Your amortization schedule will tell you how much of each mortgage payment is allocated to interest and principal.

What's the difference between the APR and interest rate?                     

 The interest rate is the yearly rate a lender charges for permitting the borrower to use money for a specific length of time. The rate is calculated by dividing the total amount of interest charged by the loan amount. For example, if a lender charges a customer $60 a year on a loan of $1000, then the interest rate would be (60/1000) x 100% = 6%. The Annual Percentage Rate (APR) is a little more complex and is comprised of two factors: it includes your actual interest rate and any additional costs. Additional costs might include things like prepaid interest, private mortgage insurance or closing fees. Your APR represents the total cost of credit on a yearly basis after all charges are taken into consideration. It is typically higher than your actual interest rate because it includes these additional items and assumes you will keep the loan to for the full term.

How much money will I need for a down payment?       

It is recommended to put down about 20% or more of the cost if you have that amount of money available. This is known as 80% Loan To Value ratio (LTV). If you put down less than this you will be required to pay Private Mortgage Insurance (PMI) which protects the lender in the event you default on the loan. PMI is not tax deductible and can cost anywhere from $25 to $65 per month for a $100,000 loan. It's determined by the size of the down payment, the type of mortgage and amount of insurance.

When should I refinance my mortgage?

There are many reasons homeowners refinance: to lock in a favorable interest rate, to withdraw equity they've built up in their home, or to pay off their mortgage more quickly. If you're thinking about refinancing, here are some things you'll need to consider:

  1. The interest rate of your current mortgage versus the current rate. If, for example, you see that rates have dropped two points, you'll want to seriously consider refinancing.
  2. The type of loan you have. If you have an adjustable rate loan, you may want to refinance to switch to a fixed-interest loan.
  3. How long you plan to stay in your house. If you're thinking of selling in the next three to five years, the amount you save on refinancing may not cover the costs associated with closing.
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