Basic Mortgage Terms
Joseph Kenny
If it is your first time applying for a mortgage, there are a
number of mortgage terms you should know. Educating yourself
on the
various mortgage terms you will run into will help you make
better decisions when deciding which home you want to purchase.
When you sign a mortgage contract, your home is used for
collateral and it is your responsibility to make sure your
payments are made on time each month.
The first term you should know is principal. The principal is
basically defined as the amount of money you borrow for your
home. Before the principal is provided you will need to make a
down payment. A down payment is the percentage you will put
towards the principal. The amount of the down payment will
often depend on the cost of the home. Once you pay off the
principal, the home is yours.
The next term you will need to know is interest. Interest is a
percentage that you are charged to borrow a certain amount of
money. Along with the interest rate, lenders may also charge
you points. A point is a portion of the total funds financed.
The principal and interest makes up the majority of your
monthly payments, and this is a method that is called
amortization. Amortization is the method by which your loan is
reduced over a given period of time. Your payments for the
first few years will cover the interest, while payments made
later will be applied towards the principal.
A portion of your mortgage payments can be placed in an escrow
account in order to go towards insurance, taxes, or other
expenses. The next term you will hear a lot is taxes. Taxes are
the amount of money that you have to pay to your state or
government. When it comes to your home, these are known as
property taxes. These taxes are used to build roads, schools,
and other public projects. All homeowners must pay property
taxes.
Insurance is another important term that you will hear in the
real estate community. You will not be allowed to close on your
mortgage if you don't have insurance for your home. Home
insurance covers your home against floods, fire, theft, or
other problems. Unless you can afford to repair your home if it
is damaged, it is usually a good idea to get insurance for your
home. If your home is located within a zone that is known for
having floods, federal laws may require you to have flood
insurance.
If the down payment you put towards your home is less than 20%
of the total value, you will often be charged additional
premiums on your insurance by the lender. This is done to
protect you in the event that you default on your loans and
fail to make payments. Without this, many people would not be
able to afford a house. Once you have paid off about 78% of the
home, the lender will stop charging you insurance premiums.
These are the basic terms you will need to know before your
purchase a home. Understanding these things will allow you to
avoid many of the pitfalls that exist in the real estate field.
You want an interest rate that is low, and you should always try
to get a fixed interest rate if possible. This will allow you to
focus your income on making payments towards the principal, and
this will help you pay off the loan faster. A mortgage is an
important part of your financial picture, and you want to make
sure you pick a home that you can afford. If you fail to make
your payments, you may lose your house.
About The Author: Joseph Kenny writes for the loan comparison
sites http://www.ukpersonalloanstore.co.uk and also
http://www.selectloans.co.uk
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