When applying for a home loan, it is important to understand the key mortgage terms to make informed decisions. Here are some essential terms to be aware of:
- Principal: The initial amount of money borrowed for the home purchase.
- Interest Rate: The percentage of the loan amount that you’ll pay as interest over the life of the loan.
- Fixed Rate Mortgage: A type of mortgage where the interest rate remains constant throughout the loan term.
- Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that changes periodically based on a specific financial index.
- Loan Term: The length of time you have to repay the loan, typically 15, 20, or 30 years.
- Amortization: The process of gradually paying off the principal and interest over the loan term through regular payments.
- Down Payment: The initial amount of money you pay upfront toward the purchase price, typically a percentage of the home’s total cost.
- Private Mortgage Insurance (PMI): Insurance required for loans with a down payment of less than 20% to protect the lender in case of default.
- Homeowners Insurance: Insurance that protects your home and belongings from damage or loss.
- Property Taxes: Taxes paid to local governments based on the assessed value of the property.
- Closing Costs: Fees associated with the purchase of the property, including appraisal fees, title insurance, and attorney fees.
Understanding these terms will help you navigate the home loan application process with confidence and make informed decisions about your mortgage. Watch out for our next blog post for another set of mortgage terms you should know about!