Get Familiar With These Mortgage Terms Before You Apply
Are you currently looking at homes for sale, and you'll soon be ready to apply for a mortgage? If so, it will help become familiar with the various terms that will be used during the process. You will benefit from learning about a real estate loan lending program.
Principal And Interest
Be aware that your entire monthly mortgage payment does not go towards reducing your debt. Your monthly mortgage payment is broken up into principal and interest. The principal is how much of the payment goes towards paying down the actual loan amount, and interest is the amount of money paid to the lender for providing you with the loan.
Any type of mortgage you apply for is going to charge you based on an interest rate. However, that interest rate is not applied in a flat manner across the entire mortgage. The truth is that you are looking at the interest rate that is averaged across the entire lifespan of the loan. The first few years of the loan are going to have mortgage payments that are mostly interest and very little principal, and the final years of mortgage payments are the complete opposite.
Your mortgage amortization schedule breaks down what each monthly payment is throughout the entire term of the mortgage on a month-by-month basis. This will help you understand just how much interest you are paying each month.
Your mortgage lender may give you the option to purchase mortgage discount points, which are a way to reduce how much in interest you pay over the entire mortgage. Know that one discount point costs the equivalent of 1% of your home's mortgage, rather than 1% of the price of your home. Each point reduces your interest rate by .25%. This may not seem like a lot, but it can make a huge difference over the course of your loan.
You often need to do some math to figure out if it is worth buying mortgage points. You can do this by calculating the price of the points and how much money you'll save each month, and then how many months it takes to break even with the points. Planning to sell your home before the break even point? Then don't purchase mortgage points
Not familiar with other terms being used by your mortgage lender? Make sure to ask as these terms come up, and your loan officer will be sure to help let you know what everything means so you have a clear understanding of your mortgage.