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Mortgage Information - Refinancing? Second Mortgage? Home Equity Loan? Understand The Basics
A mortgage is usually the biggest purchase that an individual makes, and
because of that, many people tend to get nervous during the process. But
wouldn’t it make things easier if you felt that you had a “handle” on the
process—or at least the terminology? After all, in order to get the best
deal on your mortgage loan, you will need to understand certain things
such as points, interest rates and closing costs.
If you feel like you could
stand to brush up on your mortgage loan terminology, why
not read the following common terms and their definitions?
Points
A point is amount that a borrower
will pay in order to reduce the interest rate on their
mortgage. One point is generally equal to 1% of the loan
amount. For example, if you were taking out a 100,000 mortgage,
and wanted lower interest rates, you might have to pay
anywhere from 1-3 points (or $1,000-3,000 dollars) to get
that rate. It’s important to note that some lenders will
advertise very low interest rates, and only when you read
the fine print will you learn that you will have to pay
points in order to get them.
Interest Rates
When a lender makes a loan,
they make money by charging interest on that loan. With
a mortgage loan, all of that interest is front-loaded,
which means that for the first few years, every payment
that you will make will go mostly toward the interest.
When applying for a mortgage,
you will have the option of “locking-in,” or “floating”
your interest rate. If you choose to lock-in your rate,
then you will be assured—for about 60 days—that when you
close it will be at that rate. However, if it appears that
interest rates will go lower, you can choose to float the
interest rate, which means that you can watch the rates
carefully, and then lock it in whenever it reaches an amount
that you are comfortable with.
Closing Costs
When you go to close on your
home at the title company, both the buyer and seller will
have to pay a pre-determined amount of closing costs. These
are determined by the type of loan you get, and the area
where you live. Your lender is required by law to inform
you of any closing costs beforehand, so be sure to ask
for your truth in lending estimate.
As you can see, mortgage terms
aren’t that mysterious! Do some research or read some more
articles on this site to become familiar with the lending
terms that you need to know.
Look for mortgage companies
that will provide you offers from more than one lender.
That way, you can get competitive offers.
Here are our recommended sources for mortgage lenders online:
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