It can be hard to figure out how to get a mortgage. There is a lot of paperwork to sign, read, and follow. You'd think you were trying to get into Harvard or Yale, but those schools don't ask for that much paperwork! Although getting a mortgage can be a confusing process, there are three terms that every mortgage holder should know to better understand what he is she is getting into.
If you know just a few facts about mortgages before you get one, you will have a much better idea of what kind of commitment you are making.
Surprisingly, the first word you should learn is the word "term." Term refers to how long your mortgage will last or how long you will be making payments.
There are a lot of mortgages that last between ten and thirty years. Most of the time, the longer the loan, the lower the monthly payment (and the more interest the mortgage company makes). In general, you should go for the shortest term you can comfortably afford. If you keep the length of your mortgage as short as you can, you could save tens of thousands or even over a hundred thousand dollars in interest.
Next, learn about your loan's interest rate and how it is calculated. The interest rate is the amount of interest you will have to pay on the money you borrow. It is written as a decimal, like "5.2," which stands for "5.2 percent." Is it fixed or can it be changed? In other words, does it stay the same for the whole loan term, or does it change at certain times? Even though adjustable rate mortgages can look better at first, most people should try to avoid them. Often, they reset to higher interest rates, which can hurt you if you're not ready for your monthly payments to go up.
Last, know what closing costs are and how they will affect the price you pay for the house. Most of the time, you will have to pay for these closing costs out of your own pocket. Closing costs include things like home appraisals, attorney fees, notary fees, and deed fees. Basically, if there is a fee, it usually falls under "closing costs." Be a smart and savvy consumer. If you see a fee that you don't understand or that doesn't seem right, speak up! Some mortgage lenders try to sneak in any fee they can think of to make a few extra dollars.
If you know what these three terms mean, you'll be a better home buyer and be able to find the best mortgage for you. When you want to buy a house, you should shop around for a mortgage just like you would for any other product. Even a small difference between two lenders' interest rates can save you thousands of dollars. Don't be afraid to compare prices, since it's your money.
