Are you planning to get a mortgage? Then you better start shopping to get the best deals.
Mortgage involves a lot of money and it can affect your finances.
If you do not choose your mortgage wisely, you can end up into a lot of trouble.
It may not be now but it could happen in the future.
You might end up contracting with a deal that could be a future liability in your part.
As a result, foreclosure can become inevitable, causing you to lose your home and a lot of money.
But shopping for mortgage would be useless, if you do not know exactly what you are looking for.
The best thing to do first is to educate you about mortgage.
In fact, if you have no idea about it, you have to go back to basics.
One of the best ways to learn mortgage is by learning its terminologies.
So, if you are interested to get starting on your mortgage 101, then here are the terms you should know about: Mortgage- It is also termed as a housing loan.
In here, the interest of the property is conveyed to the lenders for the purpose of securing the debt.
There are different types of loans you can avail: fixed, adjusted rate, FHA, Veterans, Reverse and other negative amortization loans.
Interest rates- This is basically the fee that a buyer pays for obtaining the mortgage.
This is how banks earn from allowing people to earn money.
In mortgage, interest rates can be fixed or variable.
Fixed rates would mean the monthly payments would be unchangeable.
On the other hand, variable rates would result to an increase or decrease on monthly payments.
The annual percentage rate is usually being checked to determine the affordability of the loan.
Borrowers always look into these rates when shopping for mortgage.
Principal- This is the amount you have borrowed from the bank.
The principal amount is usually based on a certain percentage of the purchase amount of the house.
This will be amortized over the life of the loan and will be paid back with the interest rates.
As payments are made, the principal amount to be paid back decreases.
Insurance- There are various types of insurances involved in mortgage application.
There is the Lenders Mortgage Insurance.
This secures the interest of the lenders at times when the borrower can no longer make payments.
This helps them recover their losses.
There is also private mortgage insurance.
This is a typical insurance required if the borrower is unable to pay the required 20% down payment.
Other types of insurance are homeowner's insurance and hazard insurance.
Points- Also known as a prepaid interest.
It is usually paid on the beginning of the loan where it works to lessen your interest rates.
1 point cost 1% of the total amount you borrowed.
Property Taxes- This is the amount a borrower has to pay based on the value of the property.
This is a government tax and it applies to all real estate properties.
Escrow- This usually termed as a third-party involved in the mortgage process.
They are the ones tasked to receive payments and disburse them during the closing period.
They make sure that all parties involved in the process will do their own part; hence, securing the interest of everybody.
There are plenty of terms that you have to know.
These are just the basic things that you should understand.
Knowing them would allow you to ask the right questions to your lenders.
Hence, helping you make a good decision on choosing what mortgage to obtain.