Want to buy real estate through a mortgage loan? Well then, you should be aware of the following important terms that you will come across through the whole process-
Annual Percentage Rate-
The Annual Percentage Rate (APR) gives you an appropriate idea of the total yearly cost that will be incurred on loan. Along with the interest rate, it also includes all other financial charges.
An Adjustable-Rate Mortgage (ARM) is a type of loan where the interest rate varies from time to time depending upon the trends in the market.
An appraisal is an estimated value of the real estate in the market. An appraisal is required to be presented before the lender to avail of the loan.
An amortization schedule is a table that breaks down your total payment amount over a certain period. In simpler terms, it specifies the amount of principal and interest that will be paid every month.
Sometimes, the lender might ask you to keep collateral against the loan. Collateral is an asset that the lender can keep as a “security” against the loan given.
A co-borrower is someone who enters into the loan contract with you and is jointly liable to pay back the loan.
Before giving you any loan, the lender will evaluate your credit score based on your past financial activities. Having a good credit score can fetch you low-interest rate loans.
Closing costs refer to the final settlement charges that are needed to be paid to finalize the loan.
A closing disclosure is a document that states all the terms and conditions of your loan contract.
Debt-To-Income (DTI) Ratio-
The Debt-To-Income ratio helps evaluate your ability to pay the monthly loan expenses by dividing the monthly amount by your monthly gross income.
A down payment is the first payment amount of your mortgage loan. It is generally specified in terms of the percentage of the total loan value.
As the name suggests, a fixed-rate mortgage is a type of loan where interest rates remain the same throughout the loan.
Hard Credit Check-
A hard credit check is a type of inspection carried out by the lender on your past credit report to ascertain your creditworthiness before giving you the loan.
An installment loan is a type of loan where the whole amount of principal, along with interest, is paid over small installment periods.
Apart from these, there are several other terms to be revisited before finalizing the amount of loan and borrowing like:-
- Loan Amortization
- Loan Agreement
- Loan Deferment
- Property Taxes
- Private Mortgage Insurance
- Real Estate Agent
- Secured Loan
- Title Insurance
- Variable Interest Loan
Americans and the mortgage terms:-
According to the survey reports, 40% of the people in America don’t know the mortgage terms. Gen Z and Millenials, the latest generation into real-estates especially from among the Millenials only 35% are aware of terms like a down payment. In contrast, the number follows as 9% for Gen Z. Among Gen X, only 18% of them are aware of the down payment term, whereas it goes up to 39% of the 55+ age group respondents. Not only the down payment, but almost 69% of the Americans are not entirely aware of the term amortization, and even some of them are unaware of what savings can mean for them. Going by the statistics, Gen Z were least aware of any of the loan terms, whereas the 55+ were mostly aware, Gen X was in the middle. Amortization shows how the payments are made, as one part of the payment towards principal and the other towards interest while mortgage payment. For better long term financial planning, they can turn to use HELOC to pay off the mortgage, but term awareness is a must.
Various loan interest calculators can be used, but mortgage terms like closing costs, amortization, and annual percentage rate are essential. But with the advancement in technology and availability of detailed guides, the borrower mass in America are unaware of the fact, which can cause problems of losses and bankruptcy because incomplete knowledge is even more dangerous than zero knowledge.