10 Mortgage Terms You Should Know
Educating yourself about how mortgage loans work should happen before you end up in negotiations to by a home. The following guide discusses some common mortgage terms you should understand as you work toward becoming a homeowner.
- Amortization schedule shows how your monthly mortgage payment is split between principal and interest. Over time as the loan balance decreases, the amount of payment that goes toward the principal increases. Use a mortgage payment calculator to figure out an amortization schedule.
- Appraisal is a report that puts a value on a property. The home value is determined by looking at the features of a home, as well as looking at sales of comparable properties in the same area.
- Closing costs are fees associated with borrowing a mortgage loan. Some closing costs are nonrecurring fees, such the amount you pay for a title search. Other closing costs may be prepaid fees that recur over the life of the loan, such as property taxes and insurance premiums.
- Down payment is the amount of cash you have to pay toward the purchase of a home. This money is due at closing and is not included in the home loan.
- Escrow account is where money is set aside out of your monthly mortgage payments to cover property taxes and insurance. Most banks set up mortgage payments to include these fees, as well as principal and interest.
- Fixed-rate mortgages have monthly payments that remain the same throughout the term of the loan. It’s common for these home loans to have terms of 15 or 30 years, but other terms may be available.
- Home inspection is a thorough examination of a home to see if it structurally sound, in need of repair, or has other problems that need to be addressed. Always get a home inspection, even if you are purchasing new construction.
- Mortgage insurance (MI) is a policy that covers the lender if you default on a home mortgage. MI is required when you have a down payment that is less than 20% of the purchase price.
- Pre-approval occurs when a mortgage lender reviews your completed loan application and detailed financial information and has approved you for a loan of a certain amount.
- Mortgage rate lock occurs when a mortgage lender agrees to guarantee the interest rate for a specific period of time. Most mortgage lenders require you to pay a fee to lock in the rate.
These are just few of the mortgage terms you may encounter. Review the glossary of terms to learn more about mortgage loans.
Tags: home loan, mortgage, mortgage lender, mortgage loan, mortgage payment calculator
