If you’re like most people, you will need to apply for a mortgage in order to purchase a new home. But due to all of the financial and lending industry jargon, going through the process of applying for the funds you need can be somewhat confusing.
Because a home is often the largest purchase that many people will make in their lifetime, it is essential that you have a good understanding of what these pertinent terms mean, as it could make a big difference in the amount you ultimately end up paying for your property.
Some of the key terms that you’ll likely come across include:
- Fixed Rate Mortgage – With a fixed rate mortgage, your interest rate will be locked in for the life of the loan. This is the case, regardless of what happens with rates in the economy as a whole. If you chose a fixed rate mortgage, the amount of your principal and interest payment will remain the same over time.
- Adjustable Rate Mortgage (ARM) – With an adjustable rate mortgage, or ARM, the interest rate on your loan can fluctuate – both up and down. In this case, your payment could be higher or lower from year to year. Typically, though, there is a “cap” on how high your interest rate can go with an ARM.
- Points – Points are calculated as a percentage of the amount being borrowed. So, if you’re borrowing $200,000, then one point would equal $2,000. Points are added to your closing costs, so they are paid up front. However, while the amount you shell out initially will be higher (as versus if there were no points), by doing so, you may be able to lower the interest rate on your mortgage. This, in turn, could end up saving you quite a bit of money over time – especially if you plan to live in the home for many years.
Are you considering the purchase of a home soon? If so, we can help. Just give us a call, and we will walk you through all of the steps for finding your ideal new residence and making it your very own.
