A Brief Explanation of Mortgage Terms
Terms involved in the real estate and mortgage businesses can be confusing for those with limited experience. On our blog today we’re breaking down some of the terms frequently used in order to simplify the business.
We’ll start with a term that may be the most ubiquitous: down payment. Following an agreement on price between the buyer and seller, it is the buyer’s time to come up with a down payment. The down payment is a lump sum of cash that a buyer pays at the time of purchase. This amount is dependent upon the purchase price of the home. The principal is the remaining amount that you owe on your home, a figure which varies based on the mortgage you’ve agreed to. With your mortgage comes interest: the monthly cost which is a certain percentage of the principal that you are borrowing.
Now to get into more information regarding the mortgages themselves, fixed-rate mortgages are mortgages by which the interest rate (depending on the market) remains the same throughout the duration of your loan. Upon finding the right mortgage with your lender, you will lock in an interest rate that will consistently be the monthly amount you pay. On the contrary, there are also adjustable-rate mortgages, or ARM’s. This type of mortgage is the opposite of fixed-rate, as it fluctuates with the current rate. It may seem strange to not stick with one consistent rate, but ARM’s typically have lower rates at the beginning compared to fixed-rate mortgage options. The other benefit about ARM’s is the option of a cap, or a limit on how high the bank can bump up the interest rate on your loan.
Finally, after you have gone through each of those processes, you are left with closing costs. After having signed all paperwork, closing costs are those fees that you pay on the day of closing.
We hope this helps you to understand a little better!