Mortgages - Periodic Caps, Recourse Loans and Mortgage Life Insurance
When seeking out financing for your new purchase, half the battle seems to be understanding the terminology used in the mortgage industry. While a good bit of it is straightforward, there is also a collection of terms that are a bit cloudy to say the least. With that in mind, here are some terms that need to be flushed out just a bit.
The periodic cap on a loan is an area where people can get confused. A period cap is an element of an adjustable rate mortgage. It refers to the amount of movement the interest rate on the loan can be adjusted by the lender within a defined period of time. The exact nature of the cap for your loan is dependent upon the language in the borrowing agreement. The periodic cap may call out for an increase or decrease of one percent each six months, but the specifications are highly dependent upon what you agreed to at the outset of the loan. Obviously, this means you should be taking a close look at the cap language when applying for a loan.
A second set of terminology that is critical to borrowers, but which few understand, is the designation of the loan as a recourse or non-recourse loan. A recourse loan allows a lender to take back the property if you default and pursue you personally for any money owed that is not covered by the value of thehome. A non-recourse loans forces the lender to stick to just the home and eat any additional losses. Obviously, you want a non-recourse loan whenever possible. Fortunately, many states designate that all home loans are non-recourse as a matter of law, but make sure to check up on this issue in yours.
Mortgage life insurance is an area where a borrower can be taken for a ride. This insurance is purchased as security for the repayment of the loan. Essentially, you buy life insurance that pays off the mortgage in the event of your death. This may sound smart at first, but mortgage life insurance is expensive. You are far better off obtaining a traditional insurance policy to cover debts should you pass away as they are much cheaper than mortgage life insurance.
At the end of the day, these three areas of the mortgage process prove one indisputable thing. It is wise to closely read your borrowing agreement and understand the terminology.
If you are in need of a new life insurance policy, but you're concerned about how much it's going to cost, there is one option that is generally less expensive than most other types of life insurance policies. That type of life insurance is called "Term Life". Term life is what is known as pure life insurance and is generally less expensive than it's counterparts, such as Whole life, Universal life or Endowment, depending on how much insurance you need, of course.
The reason that Term life is known as pure life insurance coverage is because 100% of everything that you pay into your policy is used to buy life insurance only. This is unlike Whole life insurance, which uses a part of your premiums to buy insurance, while the rest is placed into an interest bearing savings account. This makes Whole life substantially more expensive than Term.
The other major difference between a Term life policy and a Whole life policy is that Whole life is designed to provide you with insurance protection for your entire life, whereas, Term life is designed to provide you with coverage over a certain period of time, such as a "10 Year Term or 20 Year Term", although there are also other types of Term that you can buy also. You should speak to your agent if you have a need for more permanent coverage.
More people have leaned toward buying inexpensive Term life policies over the past few years simply because most people don't need a big life insurance policy for their entire life and also because most people would like to be able to invest their money elsewhere, rather than have it invested in a life insurance policy. This is totally up to you, but you should be able to get an better interest rate than what would be offered with a Whole life policy.
So if you are looking to save money on a life insurance policy, you should take a good look at Term life as an option and grab a few free Term life quotes to see how much they cost.
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