Understanding your Mortgage: How to close the deal
If you are anything like Ashley, you hate being in the bank, the lingo and the pressure overwhelms you and you start to lose faith in your own decision-making powers.
We don’t want to leave with any regrets. Before you head to the bank know what a mortgage is. Having a deeper understanding of what a mortgage can do for you and the ability to follow the industry lingo will put you in a way better place to make an educated decision and close the deal more efficiently.
A mortgage is essentially a loan that bridges the gap between your down payment and the actual cost of the home. As with any loan you will make monthly payments that include interest as well as a predetermined amount towards the principle.
Understand the difference between Fixed and Adjustable Rates. Fixed Rated Mortgages are just that – they stay the same over the course of the loan. Adjustable Rate Mortgages have interest rates that fluctuate with the economic index. (When rates are high, your rate will be high and vice versa.)
Befriend your mortgage broker. Ashley has her broker on speed dial for a reason. They can help you understand the ins-and-outs of buying a home, especially if it is your first time. The right broker can also be a handy resource for finding you a better deal – so call before you sign anything! You can also talk to your broker about any tax breaks that may be available to you.
More lingo demystified:
Annual Percentage Rate (APR) The cost of a loan calculated by its yearly interest rate which includes the interest, points, mortgage insurance, and other fees associated with the loan.
Balloon Mortgage A borrower will get a low interest rate on a mortgage for an initial fixed period of time, anywhere from 5 to 10 years, and after that, the balance is due or is refinanced by the borrower.
Bridge Loan A short-term loan secured through the house that’s being sold to be used toward the closing costs or construction of the new home that’s being purchased (also called a Swing Loan).
Closing Costs Easy to forget about this extra cost, these are fees not included in the price of a home that the buyer pays to cover the transfer of ownership at closing.
Earnest Money Deposit The money offered to a seller to show you’re more serious than the next guy — if your offer is accepted, it becomes part of the down payment; if the offer is rejected, it’s returned; and if the buyer pulls out of the deal, it’s forfeited.
Escrow A special account where your mortgage lender puts a portion of each monthly mortgage payment to cover expenses you’ll face, like property taxes, home-owners insurance, and mortgage insurance.
Lock Interest rates fluctuate, so a lock is a guarantee by a mortgage lender promising that if you close the loan within a certain time frame, the rate won’t change.
Mortgage Insurance This benefits the lender, not you, and is required if you make a down payment of less than 20 percent of the purchase price; that way, the lender is protected if you default on your loan.
Upside-Down Mortgage The value of your home has plunged to the point where you owe more to the bank than what it’s worth.