family looking at their new home family looking at their new home

Mortgage and Refinancing 101 in the Age of Low Rates

Sep. 10, 2020   |   Updated 2:32 PM ET

Today’s mortgage interest rates hover at near historic lows. This trend represents a potential financial boon to all prospective and current homeowners in the Philadelphia region.  
 
Lower mortgage rates make owning a home a more realistic goal for first-time buyers. For those hoping to move out of a suburb and into an up-and-coming hot spot, that wish is more attainable than ever. Or maybe you love your current place, but your monthly payment stretches your budget too far. Refinancing in the current environment will create more room in your wallet.  
 
Applying for a new mortgage or a refinance makes good financial sense right now, but it’s still a big commitment. Don’t let the magnitude of the decision keep you from realizing your dreams—we’ve broken it all down for you so you can make the right call for your situation.   

 

Your Guide to Mortgages

To buy a home—or upgrade to a nicer one—the vast majority of us need to take out a mortgage. Understanding exactly how the home loan process works, from application to closing, makes you a more informed borrower.
 

Buying a Home

Once you start your real estate search, you can quickly fall in love with a home. Beautiful hardwood floors or quartz countertops in a recently toured 2,500-square-foot house or three-bedroom condo can make it hard to think about anything else. 
 
But before you jump in and make the seller an offer, step back a minute. It’s worth the time to ask yourself if you have the upfront funds needed to apply for and obtain a mortgage:
  • A down payment of up to 20% of the purchase price
  • Closing costs ranging from 2% to 5% of the loan amount
  • Home inspection fees of between $200 and $600
You can use Firstrust’s Home Savings Calculator to help you determine exactly how much money you need to set aside before you buy.
 
 
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Affording Your Loan

Besides the initial costs, you’ll have a monthly mortgage payment after your loan closes. Payments consist of two parts.
The principal and interest (P&I) portion pays down your original loan amount, also called the principal. Additionally, this portion includes the cost of borrowing, or the interest, you owe on that principal. In the beginning, a majority of your P&I goes toward interest. Eventually, the balance swings in favor of your principal. 
 
The escrow portion of your payment sets aside money to cover property taxes and homeowners insurance when they come due. Both of these items can fluctuate over time, causing a modest change in your total payment. In addition, based on the mortgage you choose and your down payment amount, you might also need to escrow for private mortgage insurance (PMI). 
 
Owning a home definitely fulfills the American dream, but it does come with a cost. Unlike when you rent, your property’s general maintenance and repairs fall on you. If you’re moving to a bigger space, your utilities might cost more. And, depending on where you live, you might owe homeowners association dues.