Simplifying Mortgage Terms
We know that the mortgage business can be really confusing for those who are unfamiliar and don’t have experience with it. In an attempt to simplify things, here are some of the primary mortgage terms explained!
To begin, we’ll start with the one that most are vaguely familiar with: down payment. Once you and the seller have agreed on a price, it will be your time to come up with a down payment. That will be a lump sum of cash that you can afford to put down at the time of purchase. This amount varies and is dependent upon the purchase price of the home. Following this, the rest of the money that you still owe on your home is called the principal, another figure which varies based on the mortgage you’ve agreed to. With your mortgage comes interest, that being a percentage of the principal that you are borrowing.
Now to get into more information regarding the mortgages themselves, a fixed-rate mortgage can give you a little peace of mind. Once you have agreed to your mortgage and locked in an interest rate with your lender, that will be the monthly amount that you will pay for the life of the loan. On the contrary, there are adjustable-rate mortgages. This type of mortgage fluctuates with whatever the current rate is. It may seem confusing to not stick with one rate consistently, especially in such a volatile market, but ARM’s typically have lower rates from the beginning than that of the fixed-rate mortgage options. The other good news about ARM’s is the option of an ARM cap, or a limit on how high the bank can bump up an interest rate on a loan.
Lastly, there is one more term which is vital to the process: closing costs. Closing costs are the various fees that you will have to pay on the day of closing once you’ve signed all paperwork.
We hope this helps you to understand a little better!