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Mortgage Information - Refinancing? Second Mortgage? Home Equity Loan? Understand The Basics
By: Carrie Reeder
A mortgage is usually the biggest purchase that an individual makes, and because
of that, many people tend to get nervous during the process. But wouldn’t it
make things easier if you felt that you had a “handle” on the process—or at
least the terminology? After all, in order to get the best deal on your mortgage
loan, you will need to understand certain things such as points, interest rates
and closing costs.
If you feel like you could stand to brush up on your mortgage loan terminology,
why not read the following common terms and their definitions?
Points
A point is amount that a borrower will pay in order to reduce the interest rate
on their mortgage. One point is generally equal to 1% of the loan amount. For
example, if you were taking out a 100,000 mortgage, and wanted lower interest
rates, you might have to pay anywhere from 1-3 points (or $1,000-3,000 dollars)
to get that rate. It’s important to note that some lenders will advertise very
low interest rates, and only when you read the fine print will you learn that
you will have to pay points in order to get them.
Interest Rates
When a lender makes a loan, they make money by charging interest on that loan.
With a mortgage loan, all of that interest is front-loaded, which means that for
the first few years, every payment that you will make will go mostly toward the
interest.
When applying for a mortgage, you will have the option of “locking-in,” or
“floating” your interest rate. If you choose to lock-in your rate, then you will
be assured—for about 60 days—that when you close it will be at that rate.
However, if it appears that interest rates will go lower, you can choose to
float the interest rate, which means that you can watch the rates carefully, and
then lock it in whenever it reaches an amount that you are comfortable with.
Closing Costs
When you go to close on your home at the title company, both the buyer and
seller will have to pay a pre-determined amount of closing costs. These are
determined by the type of loan you get, and the area where you live. Your lender
is required by law to inform you of any closing costs beforehand, so be sure to
ask for your truth in lending estimate.
As you can see, mortgage terms aren’t that mysterious! Do some research or read
some more articles on this site to become familiar with the lending terms that
you need to know.
There are also many mortgage companies online that can help you find direct
mortgage lenders and home loan brokers that will best suit your needs. This is a
quick way to find a good mortgage loan and compare rates and offers from
multiple lenders. When lenders compete for your business, it works to your
advantage.
About the Author:
To see a list of recommended mortgage loan companies online, visit this page:
http://www.abcloanguide.com/mortgageloans.shtml - Carrie Reeder is the owner of
ABC Loan Guide, an informational website with articles and more about various
types of loans.
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