Help With Your Biggest Expense - A Home Mortgage
One of the biggest expenses that we can have in our lifetime is that of a home mortgage
. For many that means a nerve-wracking time while they're going through the process. It would be so much better if we understood the whole thing a lot better and the best way to begin is to understand the jargon. When you're out shopping for the best mortgage rates, you'll want to understand the meanings of the terms Points, Interest Rates and Closing Costs.
The following mortgage terms are for those of you who would like to familiarize themselves with mortgage loan terminology.
The amount that you, the borrower, will pay to reduce the interest rate on the mortgage is called a Point. Generally speaking, one point equals 1% of the loan's amount. To explain; If you take out a mortgage of $100,000 and then wanted a lower interest rate, you may have to pay the equivalent of between 1 and 3 Points. That would come to $1,000 to $3,000 dollars to get the rate you want. Sometimes lenders will advertise low interest rates, but there's a catch. Reading the fine print will reveal that you have to pay points to get the rate.
The way that a lender makes money is by charging you interest on the loan. In a mortgage-type loan, for the first years all payments go mostly toward the interest. The interest is said to be "front loaded".
You have two options when applying for the mortgage; one is called "locking in", the other is called "floating" the interest rates. In the case of the former you will have the guarantee that for about 60 days upon closing you will have that rate. If you feel that interest rates will soon be lower you can take a chance and choose the floating interest rate, then lock the rate in at a point you feel is the best for you. It's risky but sometimes worth the gamble.
Before the close of the sale at the title company, the seller and the buyer pay certain closing costs previously agreed upon. Many factors are worked into this agreement; the type of loan, the neighborhood and certain other factors. The law requires lenders to disclose all costs to both parties before closing so it's your obligation to ask for the truth in lending estimate.
Mortgage terminology isn't all that intimidating, it's just a matter of becoming familiar with it. Online and print articles are widely available and will get you up to speed on the jargon you need to know to negotiate with confidence.
There are a lot of online mortgage companies that offer assistance in finding lenders and brokers that will be your best choice. The more companies you research and receive quotes from, the better for you. You will always benefit from competition; you're in the driver's seat.
by: Graham McKenzie
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