The real estate and mortgage businesses can be confusing for those who are unfamiliar or inexperienced. Today on the blog we’re hoping to simplify things, so here are some of the primary mortgage terms explained.
We’ll start with the one that most are vaguely familiar with: down payment. Once there has been an agreement between the buyer and seller on price, it will be the buyers time to come up with a down payment. A down payment is a lump sum of cash that an individual pays at the time of purchase. Although, this amount does vary and is dependent upon the purchase price of the home. The rest of the money that you 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 costs. Interest costs are monthly payments that are a certain percentage of the principal that you are borrowing.
To get into more of the descriptions of the mortgages themselves, a fixed-rate mortgage is a mortgage where that interest rate remains the same throughout the duration of your loan. Upon finding the right mortgage with your lender, you will lock in a rate that will be the monthly amount you pay for the life of the loan. On the contrary, there are also adjustable-rate mortgages. This type of mortgage fluctuates with the current rate. It may seem strange to not stick with one consistent rate and maintain the same monthly payment, but ARM’s typically have lower rates at the beginning than that of the fixed-rate mortgage options. The other good news about ARM’s is the option of a cap, or a limit on how high the bank can increase the interest rate on your loan.
Finally, there is one more term which is vital to the process: closing costs. Closing costs are the differing fees that you pay on the day of closing after having signed all paperwork.
We hope this helps you to understand a little better!