Top 10 Mortgage Terms...

Top 10 Mortgage Terms...

Everyone knows that you should never sign on the dotted line without reading the contract. This same term applies to loans. Signing a loan without knowing the terms and what everything means can be detrimental to your finances, credit and future investments. Before you sign on the dotted line, make sure that you know these terms and how they will apply to you.

1. Interest rate. The interest rate is the percentage of your loan that is added to your payment every month. The percentage will vary according to the economy and will make a difference in your payments.

2. Fixed Rate. A fixed rate will be an interest rate that stays at the same percentage throughout the entire period of your loan.

3. Variable Rate. A variable rate will change according to the economy and the charts that are stating what the rates should be for interest. A variable rate usually changes every year and adjusts according to a specific given range of percentages(annual and lifetime "caps").

4. Principal. The principal is the amount that you will actually be paying on your house. Whatever you pay on your principal is what you will see in the end as your investment.

5. Escrow. This is similar to a savings account of your loan. Whatever you put in escrow will accumulate without paying directly into the loan. Typically this is used by the mortgage company to pay your annual property tax and insurance bills.

6. Title Insurance. A title insurance policy will be what you get to your home after it is officially yours, stating that the property belongs to you and that it that title was free of encumberances and defect prior to your taking ownership .

7. Appraisal. After an inspection of the home is made, an appraisal will be made. This will be an estimated value of what the home is worth.

8. Equity. This is the difference between the actual value of the property and what is owed against it. A portion of this amount is typically available to be used to secure a home equity loan or line of credit.

9. First Mortgage. This is typically the purchase or primary mortgage.It is superior to all other mortgage commitments be they home equity loans or equity lines each of which is considered a second mortgage.

10. Home Equity Loan. This is a loan or line of credit that you can get for your home secured by the available equity in the home. It may be in the form of a lump sum fixed amount or as an equity line of credit which functions much like a credit card in so much as you only pay toward the balance actually used.This helps if you want to consolidate loans or invest more into the property.

Once you know some of these basic terms, you will be able to expand on your knowledge and find the exact loan that will fit your needs. These basic definitions will help you in making the right decision for the type of loan that you want.