Even though getting a mortgage is one of the most important events in one’s life, there are many terms that go along with it that people just don’t understand. This is especially true for first time buyers. Understanding all of the terms that will be thrown at you is crucial to getting the best out of your mortgage. Here are more essential mortgage terms explained.
Adjustable-rate mortgage (ARM)
Although most people are familiar with the idea of a mortgage having a fixed interest rate that you pay back every month, an ARM is one where the rate fluctuates based on a standard financial index. The rate will change periodically, and most likely will have a cap on how much the rate can change. The reason this is important to know is because there is a chance that it could be better for you financially in the long run. The only way to know is to talk to an expert.
Closing costs
Everything costs money, and transferring ownership of your property is no different. When something changes hands, you are going to have to pay for it. Closing costs are the expenses that you will incur when buying or selling your home. This includes attorney fees, escrow fees, taxes, and title insurance. We will be sure to estimate them for you. It is important to know that these exist because many homebuyers are not, and believe that they are being given the run around by unscrupulous lenders. This isn’t true, and everyone must pay closing costs.
Prepayment penalty
It might seem illogical to think that you could be penalized for paying back a loan faster than prescribed in the agreement. After all, wouldn’t you want your money sooner than later? What you have to keep in mind is that loans are given to provide a service, and that service is provided for a fee. If you pay back too soon, then the lender makes less in interest over the course of the loan, and could therefore charge fees to make up the difference. Sometimes jurisdictions do not allow this, and others set limits on penalties. Consult with your lender to understand what they could be.
Understanding all of the financial terms involved with a mortgage is probably not possible for anyone who hasn’t spent years in the industry; however, understanding the most important ones is crucial to getting the best deal possible. We want to make sure that you are completely informed of everything that we speak to you about. We pride ourselves on being an honest, open, and trustworthy lending service. We want to help you achieve your financial goals.
