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What Is Mortgage Amortization?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

What Is Mortgage Amortization?

Owning a home can feel good. But is it a good financial decision?

There’s a lot that goes into answering that question, and one of the biggest factors is something that sounds both incredibly boring and incredibly confusing: mortgage amortization.

It’s not the sexiest financial topic in the world, but it has a big impact on your personal finances. In this post we’ll break it down so that you understand what it is and how it should factor into your decision about whether to buy a house.

What Is Mortgage Amortization?

Each time you make your monthly mortgage payment, that payment is split between paying interest and paying down principal (reducing your loan balance). Amortization is simply the process by which that split is calculated.

See, your payment isn’t split the same way throughout the life of your mortgage. It’s actually different with each payment, with your earliest payments going primarily toward interest.

For example, let’s say you buy a $250,000 house, put 20% down, and take out a 30-year, $200,000 mortgage with a 4% interest rate. That means your monthly payment would be $955.

To calculate how much of that first payment goes toward interest, you simply divide the interest rate by 12 to get a monthly interest rate and multiply that by your outstanding loan. Here’s how it looks in this example:

  • (4% / 12) * $200,000 = $667

That means $667 of your initial mortgage payment is used to pay off interest, while the remaining $288 reduces your mortgage balance to $199,712.

Next month the same calculation is run again, but this time with your slightly lower mortgage balance. That leads to a $666 interest payment and $289 going toward reducing your loan.

And that’s how it works. Your early payments are primarily used to pay interest, but over time it slowly shifts so that more and more of your monthly payment is used to reduce your mortgage balance.

You should receive an amortization schedule when you apply for a mortgage, and you can also run the numbers yourself here: Zillow Amortization Calculator. This will show you exactly how much of each payment goes toward interest, how much goes toward principal, and how much interest you’ll pay over the life of the loan.

What Does That Mean for You?

Okay, great, so you have the technical explanation for how mortgage amortization works. But how is that actually relevant to you? Why should you care?

There are two big implications to keep in mind as you consider whether or not to buy a house.

The first is this is one of the reasons it often requires you to stay in your house for several years before your home purchase pays off versus renting. People often talk about renting as if you’re “throwing money away,” but they forget that you’re doing something very similar in those early years of your mortgage as well.

Remember, those interest payments you’re making, which are the majority of your early mortgage payments, aren’t building equity in your home. That money is going straight to your lender and will never be yours again. It usually takes a while before your home equity really starts to grow.

The second is buying a house costs much more than most people realize. Take the example above. You might think of it as just a $250,000 purchase, but when you include all the interest you pay over the life of that 30-year mortgage, the total cost rises to $393,739.

And that doesn’t even include the cost of homeowners insurance, property taxes, repairs, upgrades, and everything else that comes with owning a home.

The bottom line is buying a house is expensive, and in many cases renting is actually a better financial move, especially if you aren’t committed to staying in the house for an extended period of time. You can run the numbers for yourself here: New York Times buy vs. rent calculator.

How to Combat Amortization

To be clear, mortgage amortization isn’t a bad thing. It’s just how mortgages work, and it’s important to understand so you can evaluate the true cost of buying a house.

But if you’d like more of your money to go toward principal sooner, and therefore decrease the amount of interest you pay, there are a few ways to do it.

The first is to put more money down when you buy the house. That down payment is immediate equity in your home that will not be charged interest.

The second is to make extra payments and make sure they go toward paying down principal. You will have to double-check your mortgage’s specific terms, though, to make sure there aren’t any prepayment penalties or other clauses that would make this a bad idea.

And the third is to take out a 15-year loan (or other shorter term). Using the same example above and changing only the length of the loan from 30 years to 15 years, the monthly payment increases to $1,479, but the total cost of the house over the life of the loan decreases to $316,287. That’s a savings of $77,452 and doesn’t factor in the likelihood of getting a better interest rate in return for the shorter loan period.

Keep in mind all of these strategies can be beneficial in some situations and not in others. In some cases it can make more sense to invest your money elsewhere, so you’ll have to run your own numbers and make the best decision based on your personal situation.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Matt Becker
Matt Becker |

Matt Becker is a writer at MagnifyMoney. You can email Matt here

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Maine First-Time Homebuyer Programs

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Do you want to live in a state with gorgeous seaside views and fresh lobster? Maine just might be the right place. Whether you’re new to the state or already call it home, if you need help coming up with a down payment, Maine offers several programs designed to help first-time homebuyers make their homeowning dreams a reality.In January of 2019, we researched first-time homebuyer programs in Maine, which included a review of the Maine State Housing Authority website and other state resources. Here’s what first-time homebuyers in Maine need to know.

Maine first-time homebuyer programs

The Maine State Housing Authority administers several federal and statewide programs aimed at providing affordable homeownership for Maine residents.

Their programs provide fixed-rate mortgages and assistance with down payments and closing costs to help put homeownership within reach. Their mortgages also come with payment protection, in the event that buyers face unemployment.

Eligibility for Maine assistance

Homebuyers who wish to take advantage of one of the Maine assistance programs must meet income and purchase-price limitations. Income and purchase-price limits vary, depending on how many people live in your household and the county in which you buy a home. You can find a list of current income and purchase-price limits online.

Eligible properties include new and existing single-family homes, owner-occupied two- to four-unit apartment buildings and condominiums. Manufactured homes located on owned land and built within the last 20 years are also eligible. However, the purchase-price limit for single-wide and double-wide manufactured homes is $150,000.

MaineHousing First Home Loan Program

The MaineHousing First Home Loan Program provides low fixed-interest-rate mortgages with low or no down payments. It can also provide up to $3,500 in assistance with down payments and closing costs.

Features

The First Home Loan Program offers

  • Thirty-year fixed-rate mortgages
  • Low or no down payments
  • Up to $3,500 in down payment and closing cost assistance
  • Low fixed interest rates
  • Low- and no-point options
  • The option to finance between $500 and $35,000 for necessary home improvements in the same loan

Eligibility

In order to participate in the program, you must

  • Have a minimum credit score of 640.
  • Take an approved homebuyer education class before closing if you take advantage of the down payment and closing cost assistance option.
  • Contribute at least 1% of the loan toward the purchase price of your home (the cost of the homebuyer education class counts toward this 1%).
  • Be a first-time homebuyer (not have owned a home within the past three years) or a veteran, retired military or on qualified Active Duty.
  • Meet household income limits, which vary by county and household size.

How it works

The First Home Loan Program is available through a network of approved banks, credit unions and mortgage companies. You can begin the application process by contacting one of more than 40 approved lenders. The lender can help you determine how much home you can afford, decide on the right mortgage program and take you through the process of applying for and closing on the loan.

Learn more

MaineHousing Salute ME & Salute Home Again programs

The Salute ME and Salute Home Again programs help qualified active duty, veterans and retired military personnel achieve homeownership by giving them a 0.25% discount on First Home Loan mortgages.

Features

The Salute ME and Salute Home Again programs offer

  • An additional 0.25% discount on 30-year mortgages offered through the First Home Loan Program
  • Low or no down payments
  • Up to $3,500 in down payment and closing cost assistance
  • Low fixed interest rates
  • Low- and no-point options
  • Option to finance between $500 and $35,000 for necessary home improvements in the same loan

Eligibility

In order to participate in the programs, you must

  • Take an approved homebuyer education class prior to closing if you take advantage of the down payment and closing cost assistance option.
  • Have a minimum credit score of 640.
  • Be on active duty or have been honorably discharged from military service, have served on active duty for 180 days or within a war zone.
  • Use your new home as a primary residence.
  • Meet household income and purchase-price limits, which vary by county and household size.

How it works

MaineHousing programs are available through a network of approved banks, credit unions and mortgage companies. You can begin the application process by contacting one of more than 40 approved lenders. The lender can help you determine how much home you can afford, decide on the right mortgage program and take you through the process of applying for and closing on the loan.

MaineHousing Mobile Home Self-Insured Program

The MaineHousing Mobile Home Self-Insured Program allows manufactured/mobile home buyers to get higher loan-to-value (LTV) mortgages and pay a higher interest rate instead of mortgage insurance premiums (MIPs).

Features

The Mobile Home Self-Insured Program offers

  • Up to 30-year loan terms
  • Down payments as low as 5%
  • Up to $3,500 in down payment and closing cost assistance
  • The option that 3% of the purchase price may come from a seller contribution
  • The option to add up to $35,000 to the loan for repairs

Eligibility

In order to participate in the program, you must

  • Be a first-time homebuyer (not have owned a home in the past three years), have only owned an unattached manufactured/mobile home on leased land, or be a veteran.
  • Pay a maximum of 33% of your income toward housing and have a maximum total debt-to-income (DTI) ratio of 41%.
  • Have a minimum credit score of 640.
  • Meet income limits, which vary by county and household size.
  • Have a maximum purchase price of $150,000.
  • Purchase a single-wide or double-wide manufactured home that is less than 20 years of age and is permanently attached per code at the time of closing.
  • Move into the home as your main residence.
  • Not use more than 15% of the home for a trade or business.
  • Contribute a minimum of 3% toward the purchase of the home.

How it works

MaineHousing programs are available through a network of approved banks, credit unions and mortgage companies. You can begin the application process by contacting one of more than 40 approved lenders. The lender can help you determine how much home you can afford, decide on the right mortgage program, and take you through the process of applying for and closing on the loan.

National first-time homebuyer programs

If you want to buy a home in Maine, you’re not limited to first-time homebuyer programs available through the Maine State Housing Authority. There are other federal programs available to help first-time homebuyers across the country. If you’re interested in learning about national programs, start by checking out LendingTree’s guide to first-time homebuyer programs nationwide.

This article contains links to LendingTree, our parent company.  The information in this article is accurate as of the date of publishing.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Janet Berry-Johnson
Janet Berry-Johnson |

Janet Berry-Johnson is a writer at MagnifyMoney. You can email Janet here

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Rhode Island First-Time Homebuyer Programs

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Buying a new home is a scary prospect — and not just because change can be overwhelming. Figuring out how to afford a down payment, closing costs and monthly mortgage payments can feel like an Olympic gymnastics routine. Luckily, first-time homebuyers in Rhode Island have several programs that can provide assistance.

Whether you’re looking to pay less in taxes or you need help covering a down payment, the state’s solutions may be able to help you. We reviewed the state’s offerings to help you pick the best program for you.

Rhode Island first-time homebuyer programs

Rhode Island Housing offers affordable housing programs designed to make living in the state more attractive and affordable — no matter your financial situation. Not sure how to start your homebuying journey? The organization offers first-time homebuyer education for all buyers to help you understand the ins and outs of this complicated process.

But there’s real money available, too. The programs below offer down payment assistance, tax credits and affordable mortgages. They can even help you avoid paying mortgage insurance.

Eligibility for Rhode Island assistance

All of Rhode Island Housing’s first-time homebuyer programs — except for the First Down Program — require purchasing a house that costs no more than $441,176. Your new home can be a one- to four-unit home or a condominium.

And, of course, you must be a first-time homebuyer.

FirstHomes100

What is it?

Rhode Island Housing’s FirstHomes100 program helps first-time homebuyers at any income level afford a new place. The program combines a traditional mortgage with down payment assistance funds so you can finance your home 100%.

The FirstHomes100 program offers first-time homebuyers

  • One hundred percent financing
  • Assistance with down payment or closing costs through low-interest, 15-year loans
  • The ability to forego mortgage insurance in exchange for a slightly higher interest rate.

Requirements

In order to qualify for the FirstHomes100 program, you must

  • Purchase a house that costs no more than $441,176.
  • Buy a one- to four-unit single-family home or a condominium.

How to apply

If your income is less than $93,623 for a one- or two-person household, or less than $107,667 for a household of three or more, you’ll need to work directly with Rhode Island Housing’s Loan Center. Homebuyers with higher incomes can contact any participating lender to begin the loan application process.

Learn more

FirstHomes100+

What is it?

FirstHomes100+ is the sister program of FirstHomes100. It allows first-time homebuyers to not just purchase but also renovate the home of their dreams. Once buyers are approved for a FirstHomes100 mortgage, they’ll work with a consultant from the U.S. Department of Housing and Urban Development (HUD) to determine what repairs are needed. Once the final costs are determined, and if they exceed $5,000, the loan will become an all-inclusive FirstHomes100+ loan.

FirstHomes100+ provides buyers with

  • One hundred percent financing to buy and renovate the home of their choice.
  • Assistance with down payment or closing costs through low-interest, 15-year loans.
  • The ability to forego mortgage insurance in exchange for a slightly higher interest rate.

Eligibility

To be eligible for FirstHomes100+, first-time buyers must

  • Purchase a house that costs no more than $441,176 and that requires a minimum of $5,000 in renovations.
  • But a one- to four-unit single-family home or a condominium.
  • Complete FHA 203(k) Homebuyer Education before closing.

How it works

Buyers with incomes of less than $93,623 for a one- or two-person household or less than $107,667 for a household with three or more people will work directly with Rhode Island Housing’s Loan Center. If your income is higher, you can contact any participating lender to apply for the program directly through them.

Learn more

FirstHomes Tax Credit

What is it?

The FirstHomes Tax Credit is a federal tax credit for part of the mortgage interest you pay in a given year. A tax credit directly reduces the tax amount you owe. You can claim the tax credit every year, making this program helpful for years to come. Reduce your taxes even further by itemizing and deducting any other mortgage interest you’ve paid.

The FirstHomes Tax Credit offers buyers

  • A mortgage credit certificate for 20% of the total mortgage interest you pay each year.
  • Maximum credit of $2,000 a year.

Requirements

To be eligible for the FirstHomes Tax Credit, buyers must

  • Purchase a house that costs no more than $441,176.
  • Be buying a one- to four-unit home or a condominium.
  • Plan to live in the home as their primary residence.
  • Have income of less than $93,623 for a one- or two-person household, or less than $107,667 for a household of three or more.
  • You don’t have to be a first-time homebuyer if you live in the federally targeted areas of Central Falls, Pawtucket, Providence and Woonsocket.

How to apply

Ready to get started? Get in touch with Rhode Island Housing’s Loan Center or reach out to any of the approved lenders.

Learn more

First Down Program

What is it?

The First Down Program helps first-time homebuyers in the counties most affected by the recent foreclosure crisis. Through this program, buyers receive down payment assistance in the form of a second mortgage. As long as you live in the house full-time for five years, the assistance is forgiven. If you sell, refinance or no longer use the property as your primary residence, you’ll need to repay part of the loan.

The First Down Program offers buyers

  • A forgivable down payment assistance loan of $7,500.

Requirements

To be eligible for this down payment assistance program, first-time buyers must

  • Treat the home as their primary residence.
  • Purchase a home that costs no more than $454,250.
  • Be buying a one-to-four-unit home or condo.
  • Live in Cranston, Pawtucket, Providence, Warwick or Woonsocket counties.
  • Have income of less than $93,623 for a one- or two-person household, or less than $107,667 for a household with three or more people.

How to apply

Funds for this program are limited. Reach out to Rhode Island Housing’s Loan Center or a participating lender to get started.

Learn more

National first-time homebuyer programs

Rhode Island offers several helpful programs for first-time homebuyers, but buyers in the state should consider looking to nationwide programs, too. These programs can help you find an affordable mortgage, down payment and closing cost assistance, and federal tax credits.

LendingTree’s guide to first-time homebuyer programs can help you find the solution that works best for you.

This article contains links to LendingTree, our parent company.  The information in this article is accurate as of the date of publishing.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Wiebe
Jamie Wiebe |

Jamie Wiebe is a writer at MagnifyMoney. You can email Jamie here

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