Mortgaging is a complex process. Its basic terms and concepts, however, are simple enough for anyone to understand. Brush up on this little stash of knowledge as they will come in handy in your dealings with mortgage companies.
Below are a few terms and a little explanation of what they mean.
Loan Term
The loan term is the amount of time you are given to repay the loan. The usual choices are 15 and 30 years. "Term of repayment" is another word for "loan term."
Interest Rate
The interest rate of your loan is how much it costs you to borrow the money. This is computed as a percentage of the loan amount, charged over a certain period. In shopping for mortgage quotes, you will encounter two types of interest rates, fixed-rate and adjustable-rate. In fixed rate mortgage, the interest rate stays the same all throughout the lifetime of the loan. In adjustable-rate mortgage, the interest rate starts small and gradually increases over the loan life.
Additional Fees
In obtaining mortgage quotes, you will come to discover that the loan amount and interest are not the only sums you have to pay. There are additional charges, too, and most of them are fees incurred during loan processing.
Annual Percentage Rate
The Annual Percentage Rate, or APR, is the total sum you have to pay. This includes mortgage interest rate and additional fees. When shopping around for mortgage quotes, pay attention to the APR. APR comparison will tell you which lender is offering you a more cost-efficient loan. Some lenders try to make their quotes more attractive by giving you low interest rates but require you to pay higher fees.
Contingencies
A typical contract contains clauses that mandate inspection of key areas of the house before the actual purchase. These clauses are called contingencies. Ask about contingencies while obtaining mortgage quotes.
Mortgage Lender Versus Mortgage Broker
To the uninitiated, it may seem ridiculous to have to choose between a mortgage lender and a mortgage broker. After all, the end result is the same. Those in the know, however, can tell you that a mortgage lender is not the same as a mortgage broker. A lender is an official at a lending institution who will lend you money for your house. A broker, on the other hand, is one who will shop around for you so you can have mortgage loan options to choose from. In the short run, it is easier to deal with a mortgage lender. In the long run, however, it might be better to deal with a mortgage broker because he may be able to provide you with better deals. The best thing you can do before taking out a mortgage is to compare mortgage quotes from both mortgage lenders and mortgage brokers.
It's important that you take your time to study all you can about the transaction and the market before signing anything. This way, you can make responsible and informed decisions.
