Isn’t it a bit frustrating to come across terms that you are not familiar with? When it comes to mortgage, not knowing the common terms that lenders use will only cause you confusion. Before you ask around about home loans, you need to be familiar with the language that mortgage brokers use.
Here are some of the important mortgage terms you shouldn’t miss:
This is a percentage of your mortgage that lenders will charge you upon borrowing. The lending professionals of City Creek Mortgage explain the interest rate may vary for every borrower. Certain factors may affect the rate, such as your credit rating, market conditions, your loan type, and down payment.
This is the duration or period for repaying your outstanding loan balance. Shorter terms usually equate to higher monthly payments, but reduced interest rates. When you choose a short-term arrangement, you’ll pay less the overall interest than on a mortgage with a longer term.
This covers all charges — excluding discount points — that all mortgage brokers will get when you agree to a mortgage. In short, it’s like a commission. This covers underwriting fees, document preparations, and all associated costs. You may include origination charges in your refinanced loan, as long as the lender allows you to.
One percent of the loan amount is equal to one discount point. You can use your points to reduce your interest rate, but this is still subject to your lender’s approval. This also means that you can reduce your monthly payments. While discount points are typically tax deductible, you should consult your accountant when it comes to this matter. When refinancing, you may use finance discount points as a part of your loan amount.
Monthly Mortgage Payment
This consists of four parts:
- Principal – This lowers your mortgage loan’s outstanding balance.
- Interest – This is the rate you pay to the lender.
- Taxes – This goes to your property taxes charged by the local government.
- Insurance – This covers your homeowner or hazard insurance, which is often required for a mortgage. Similar to taxes, you can obtain and pay this with an escrow account.
Depending on the location of your property, the type of loan and your mortgage amount, you may still have to cover additional expenses. It’s best to be ready for these costs before deciding to buy your dream home and applying for a loan.