Business and Personal Finance © 2007

Chapter 7: The Finances of Housing

S&P's Financial Focus

Understanding Mortgages

You probably will have to take out a loan, called a “mortgage,” to buy a house. However, the mortgage is only one cost you must consider before buying house.

Make a List of Your Costs Here is a list of costs you will incur:

• Mortgage  A mortgage consists of the principal, or the amount you borrow, and the down payment, or an amount you pay up front, which is a percentage of the purchase price. The down payment ranges from 5 percent to 30 percent.
• Interest  Interest rates vary. You will pay interest on the amount of the mortgage minus the down payment.
• Points  Most mortgage lenders charge a fee for the mortgage. Points are based on the amount of the principal: 1 point = 1 percent of the interest.
• Closing Costs  Lenders charge fees for their services that are related to your loan.
• Insurance  Lenders require borrows have homeowner's insurance, which protects you and the lender against property damage due to fire, theft, or other hazards.
• Taxes  Based on the value of your property, you need to pay taxes to your local government. These taxes help support your community’s schools, fire and police departments, and other government services.

Standard and Poor’s publishes the globally recognized S&P 500® financial index and provides credit ratings. It also gathers financial statistics, information, and news, and analyzes this data to help individuals, companies, and governments make financial decisions. Go to www.standardandpoors.com to learn more about this company.