Along with browsing professional reviews, you can compare lenders and understand options by breaking down specific terms and definitions. Use the following list to help build your knowledge and apply for a loan with confidence. Once you are comfortable with the lingo, you can also check out our comparisons of the best mortgage loan companies.
The schedule you set up to pay off your mortgage is referred to as the amortization. These monthly payments typically include the interest payment along with the balance of the home. The amortization of a mortgage is typically broken down evenly over the length of a mortgage. For example, if you have a 30-year fixed rate mortgage, you may have a monthly payment of $1,500 for each month of the 30 years.
As you plan out your mortgage calculations, your amortization may change based on numerous factors. For example, if you pay extra toward your mortgage each month, the whole amortization will lower and your home will be paid off sooner than you expected. Toward the end of your mortgage term, you could end up with lower payment amounts or fewer payments to make overall.
In some cases, your mortgage may be set up as a balloon mortgage. Basically, this means that you will have one large lump-sum payment toward the end of the mortgage agreement. These mortgages typically last 5 to 7 years and have low interest rates to start off. The borrower makes regular payments throughout the course of the term and then pays off the remainder of the home balance at the end of the term. This type of payment plan is ideal for buyers who have saved up a considerable sum of money and can afford the purchase price of the entire home.
As you shop through various home mortgage lenders, you will often see percentages associated with the APR. This acronym stands for “Annual Percentage Rate,” and it represents the amount that you will pay in addition to the mortgage. This rate includes the interest rate of the loan, mortgage fees, and any other charges that may come with the mortgage agreement. Shopping for the lowest APR can help you save thousands of dollars in the home-buying process. If you have bad credit, it may be harder to get a mortgage but it is still possible.
The principal amount of a mortgage is money that is owed for the house and property. This does not include the interest or APR. For example, if your mortgage is $200,000, the principal value of the home may be set at $180,000 while interest rates and fees add up to $20,000. Knowing the principal amount can up you understand the true value of the home.
To help protect banks from foreclosures and short sales, many homebuyers will have to purchase mortgage insurance. This coverage will help banks recoup losses when a home falls through or payments are not made. Mortgage insurance is typically added at the closing of a home and is traditionally a one-time fee.
Good Faith Estimate
After applying for a mortgage offer, one of the first things you will receive is a Good Faith Estimate. These estimated costs include several aspects of the mortgage. Along with the total mortgage amount, these estimates will break down various fees that the lender has. It allows you to truly compare the mortgage rates and make an informed decision. Once you receive a good faith estimate, you can decide to move forward with the lending company or choose a different company for your mortgage needs.
As you apply for loans, there may be other terms that you do not understand. Don’t be afraid to ask questions and get answers so that you’re clear about every aspect of the loan process. Once you understand the different terms, you can read reviews to see rate comparisons and easily apply for loans.