If you are getting a mortgage for the first time, there are a few terms you should know. If you know what the different mortgage terms mean, you will be able to make better decisions about which home you want to buy. When you sign a mortgage contract, your home is used as collateral, and it is your job to make sure your payments are made on time every month.
Principal is the first word you should know. The principal is the amount of money you borrow to pay for your house. Before you get the rest of the loan, you will have to pay a down payment. A down payment is the amount of money you pay at the start of a loan. How much the down payment is will often depend on how much the house costs. When you pay off the home's principal, it's yours.
Interest is the next word you'll need to know. When you borrow a certain amount of money, you pay a certain amount of interest. In addition to the interest rate, a lender may charge you points. A point is a piece of the total amount of money that is financed. Your monthly payments are mostly made up of the principal and interest. This is called amortisation. Amortization is how your loan gets paid off over a certain amount of time. Your payments for the first few years will go toward paying off the interest. After that, your payments will go toward paying off the principal.
You can put a part of your mortgage payment into an escrow account to pay for insurance, taxes, or other costs. Taxes is the next word you will hear a lot. Taxes are the money you have to give to your government or state. These are called property taxes because they have to do with your home. With these taxes, roads, schools, and other public projects can be built. All homeowners have to pay taxes on their homes.
Another important word you will hear in the real estate world is "insurance." If you don't have insurance for your home, you won't be able to close on your loan. Home insurance protects your home from damage caused by floods, fire, theft, and other things. If you can't afford to fix your home if it gets broken, it's usually a good idea to get insurance. If your home is in an area that is known to flood, you may be required by federal law to have flood insurance.
If the down payment you put on your home is less than 20% of its total value, the lender will usually charge you more for your insurance. This is done to protect you in case you can't pay back your loans and end up in debt. Without this, many people would not be able to buy a house. The lender will stop charging you insurance premiums once you have paid off about 78% of the home.
These are the most important words you need to know before buying a house. If you know about these things, you can avoid many of the pitfalls in the real estate business. You want a low interest rate, and if at all possible, you should always try to get a fixed rate. This will let you put more of your money toward the loan's principal, which will help you pay it off faster. A mortgage is a big part of your finances, so you need to make sure you choose a home you can afford. If you don't pay your bills, you might have to give up your house.
