Mortgage 101


Who Pays the Cost For the Service Of Obtaining Mortgages

A mortgage is a loan secured from a bank for the purchase of your new home. You will repay the bank the loan (with interest) over the term of your mortgage.

What Avenues Are Available To Me To Secure A Home Mortgage?

There are three basic channels for obtaining home mortgage financing available to consumers. Each has differences in approach and structure.

Commercial and Savings Banks are direct lenders and can be approached individually for mortgages. They underwrite and fund their own loans and have specific programs depending on their own requirements.

Mortgage Banks are banks solely in the business of offering home mortgages. They underwrite and fund their own loans but have relationships with many commercial and savings banks and are able to offer programs from multiple sources.

Mortgage Brokers are companies that do not fund their own loans but rather arrange loans for their clients through commercial and savings banks. Mortgage brokers are typically paid commissions for their services by the banks they arrange loans through. The banks, not the mortgage brokers, underwrite and fund the loan.

Who Pays the Cost For the Service Of Obtaining a Mortgage?

All costs involved in the mortgage process are outlined in the Good Faith Estimate supplied by your banker or mortgage broker. Whether you use a banker or broker, there is usually no direct charge to the client for the mortgage professional. Application, appraisal and bank attorney fees are different for all lenders and should be reviewed with a mortgage professional before applying.

What Are the Types Of Mortgages?

There are a few different types of mortgages to choose from. Your mortgage professional will be your guide in choosing the correct mortgage for your financial situation. TYPES OF MORTGAGES:

Fixed Rate: The interest rate is fixed for the entire term of the loan.

Adjustable (ARM): The interest rate changes over the term of the loan in increments of one month, six months, 12, 18, etc.

Hybrid-Fixed: This is the most popular loan, especially in New York City. The interest rate is fixed for 3, 5, 7 or 10 years and then switches (typically) to a one year adjustable schedule. This is the most attractive option for people who do not plan on owning their apartment for the entirety of a 30 year mortgage. Also, the shorter term the fixed portion is, the lower the interest rate tends to be. A five year fixed portion is popular in New York City.

Jargon is nobody’s friend. The good news is that there is not much terminology in mortgages that is beyond everyday language. Here are two key terms that you need to understand:

Good Faith Estimate

A Good Faith Estimate is given to you at the outset of the application process and is the estimate of your closing costs (which can become rather pricey). It is important to build your closing costs into your financial picture for this transaction.


Amortization provides for paying off a debt in installment payments. A portion of each payment is applied first to the payment of interest; the remainder reduces the principal amount of the loan. The interest is always applied against the outstanding principal balance unpaid at the time of an installment payment only. The rate of interest is an annual percentage rate as specified by the note and mortgage. The interest rate is calculated by multiplying the annual percentage rate by the unpaid principal balance and dividing the result by 12 to determine the amount of interest due and payable for each monthly installment.

After deducting the interest, the remainder of the payment reduces the principal balance. Therefore, the amount of interest paid with each installment declines because the interest rate is applied against a smaller and smaller amount of principal. In this way, the loan is amortized, so the final payment in a fully amortized mortgage will pay any remaining interest and principal.

Okay, I understand the types and jargon, but what are the steps to actually GETTING a mortgage?

©: 2017 Charles Rutenberg, LLC 641 Lexington Ave., New York, New York 10022 | 212-688-1000 |