An adjustable-rate mortgage is a type of mortgage that has a variable interest rate. For the first few years, your mortgage will have a fixed interest. But after that, the interest rate will fluctuate based on the market index.
Amortization is an accounting method of paying off debt by making smaller payments spread out over a certain period of time. With a mortgage amortization, part of your monthly payment goes toward paying off your principal loan, and the other part is for the interest.
Initially, you'll be paying more on the interest than the principal. But over time, more of your monthly mortgage payment will go into paying off the principal loan and less on the interest.
An annual percentage rate is a calculation that includes both the interest rate of a mortgage and the lender's fee. When shopping for a loan, you'll often see two percentages listed. The larger number is the APR. The bigger the difference is between the APR and the interest rate, usually means that you'll be paying higher lender fees.
A balloon loan is a type of loan that involves lower monthly payments and a larger one-time payment at the end of the mortgage term. Usually, the borrower will only pay for the interest throughout the term. And by the end of the term, they would have to pay the rest of the loan balance. Balloon loans might be a good choice for those who have an excellent credit score and a sizable income.
A closing disclosure is a five-page document that defines the important factors of your mortgage. This includes the purchase price, interest rate, loan principal, closing costs and other expenses. You'll have three days to review the closing disclosure. So always go through it thoroughly before you sign.
A legal document that transfers the ownership of property from the seller to the buyer. In other words, it's proof that you are now the owner of the property you bought.
Discount points are optional prepaid interest that borrowers can buy to lower the interest rate of their homes. Each discount point is equal to 1% of your loan amount. Discount points are also known as mortgage points.
Also known as a good faith deposit, an earnest money deposit is a check that a buyer writes to a seller when making an offer on the property. Earnest money shows that you are serious about purchasing the home. This reassures the seller when they have to take the property off the market while waiting for you to get the financing, property appraisals, and inspections before closing.
Usually, earnest money would cost about 1 - 10% of the purchase price, depending on the market and condition of the property.
Earnest money will be deposited into an escrow account or in a non-interest-bearing trust. It will stay there until closing. Upon closing, you can then use the earnest money on your down payment or closing costs. If the sale did not push through because of situations such as the home not passing the inspection, the earnest money will be refunded to the borrower.
An escrow is a financial arrangement wherein a third party holds the assets or funds on behalf of two other parties involved in a legal transaction.
There are two main purposes for an escrow account. Firstly, an escrow account can be used to hold earnest money when buying a home. Secondly, it can be used to hold a portion of your monthly mortgage payments to pay for your taxes and insurance when they are due.
A fixed-rate mortgage is a type of home loan that has the same interest rate throughout the life of the loan. Most borrowers prefer fixed-rate mortgages because it's easy to understand and makes budgeting easier.
Home inspection and home appraisal are oftentimes used interchangeably. But they are actually two different things with two different purposes.
As mentioned above, an appraisal examines the condition of a home, as well as the location, features, and market trends, to provide an estimation of its value. It's also required by most lenders.
On the other hand, a home inspection is a thorough examination of a property. A home inspector checks the safety and condition of the property. This includes assessing the heating and cooling systems, electrical work, sewage, and more. The findings will allow you to identify what needed repairs, renegotiate the sales, or cancel the sales agreement.
Although a home inspection is not required by lenders, it is good to have one to identify problems before you actually buy the property.
Homeowners insurance is a policy that covers damages to a home which includes interior and exterior damages, loss or damage to assets, and injury incurred while on the property.
An interest rate is a fee that is paid to a lender for borrowing money from them. It is expressed as a percentage of the principal. Interest rates change often, but they can either be fixed or adjustable. There are lots of tools online to help you explore interest rates in your area.
A loan servicer is the one responsible for managing your loan. They send you your mortgage statements, process your monthly payments, track your principal and interest rate, manage your escrow account, and respond to any inquiries you might have about your loan.
A mortgage term refers to the length of time it takes to pay off your loan. The common terms are 15 and 30 years. Generally, the shorter mortgage term has lower interest rates but higher monthly payments.
A mortgage payment is how you pay off your home loan. It is a monthly obligation that is made up of four components—principal, interest, taxes, and insurance (PITI).
A pre-approval shows the loan amount a lender is willing to give you. Although it's similar to a prequalification, a pre-approval requires you to provide more financial information to the lender. Other than the loan amount you are qualified for, pre-approvals may also include your interest rates. However, these terms only last until the pre-approval validity which is usually 60 to 90 days. Keep in mind that being pre-approved is not a guarantee that you will be offered a loan.
A principal is the unpaid portion of your loan balance. For example, if you borrowed $300,000 from a lender, then your principal is that $300,000. As you pay off your monthly mortgage, your principal will also decrease.
Property tax is the levy that a property owner pays to their local government. The amount you pay in property tax is usually based on your property's assessed value and where you live.
A promissory note is a legally binding document in which the borrower promises to pay the lender. Promissory notes often include the loan amount, interest rate, mortgage term, conditions and obligations between the two parties.
A real estate agent is a licensed professional who can assist you in real estate transactions. The duty of a real estate agent includes helping you find potential properties, drawing up offer letters, and negotiating to get you a great deal.
To refinance a mortgage means to pay off your current mortgage loan in order to get a new one. Borrowers refinance to take advantage of lower monthly payments, lower interest rates, or shorter mortgage terms.
Seller concessions are closing costs that a seller agrees to pay on behalf of the buyer. Offering seller concessions might make the property more appealing to potential buyers. Additionally, it also helps buyers pay less at closing.
A title means ownership of a property. The transfer of title, along with the description of the property, is written on the deed.
Title insurance is meant to protect the buyer or the lender against potential loss if the property has unknown issues.