There is a lot of paperwork involved in getting a mortgage and it can be a very intimidating and confusing endeavor. The procedures that need to be followed and the papers to be read can be more complicated than trying to get into an Ivy League College. Although this is a very confusing time, there are three terms that every homeowner with a mortgage must know so that they will be better able to understand their commitment to home ownership.
Term
The first word that you should understand is the word ‘term’. In the world of mortgages, term means the length of time that you have to repay the mortgage. Two common terms for mortgages are 15 years and 30 years, however there are other terms that can be used such as ten years. The longer the term or payoff time, the lower your monthly payments will be; when you decrease the payoff time or term, then the payments will increase.
Rate
The next very important term that you need to understand is your interest rate and the manner in which it is calculated. The interest rate can be expressed as either a decimal or a percentage. Here are some examples: 5.2% can be written as 5.2, 5.2%, or 0.052. You also need to understand whether the interest is fixed or adjustable. A fixed rate mortgage has an interest rate that stays the same over the life of the loan. An adjustable rate mortgage, or ARM as it is sometimes called, may look great initially, but the rates will increase with the interest rates and the changes in your monthly payment could be dramatic.
Closing Costs
The third thing that you need to understand is the closing costs and how they will affect your purchase price. Sometimes the closing costs are paid out of pocket at closing or the signing of the deal, hence the term closing costs. This can involve things like title fees, escrow and inspection fees, and lender fees to name a few. Some lenders will use every fee imaginable to drive up their profits, so be a savvy consumer and look those fees over carefully and don’t be afraid to challenge anything that looks excessive. There is always room for negotiation, especially in today’s market.
Understanding these three concepts can save you a lot of money and many headaches. It pays to shop around for the best mortgage deals and being an informed consumer can help you to obtain the better deals. Small changes in interest between two lenders can add up to a multitude of savings over the life of your mortgage. So go ahead and comparison shop, and don’t keep it a secret. After all it is your money, and the lender might be willing to negotiate a better deal to obtain your business.
