Terms to Know When Shopping for Your First Mortgage
For some, having to pay a mortgage sounds terrifying. This responsibility comes at high costs and it's a financial decision not anyone could take. After you have decided to pay mortgage, there are many other things you should think about. For example, the terminology. Once you have entered this world, there is no escape for you until you are familiar with some terms. It's not a whole new language you have to learn, but you need to be familiar with it.
Adjustable Rate Mortgage
The first term that you need to know when shopping for mortgage is ARM, which stands for adjustable rate mortgage. That's how this term is translated into words. When it comes to what it means, find out it's nothing else but a type of loan in which the interest changes with time. This means you'll have to pay different interest rates. It is not an established sum that you need to pay the financial institution every month, but a changeable one.
Fixed-Rate Mortgage if Not ARM
Old-school and for those who prefer a more quiet settlement, fixed-rate mortgage is completely different from ARM. While the ARM rates change with the market, the fixed-rate mortgage commits you to the same interest rate. This is available for the entire duration of the loan. However, if something happens and the market's interest rates suddenly drop, you are stuck with a high rate.
This type of mortgage is less common. In this case, you're doing nothing else than taking the mortgage from someone else. This means you no longer have to start a new loan, but take another person's one. It makes sense when interest rates are on the rise. If you decide to go with assumable mortgage, you will also pay less when it comes to the fee. You aren't getting a new mortgage, so it's only logical for this to happen.
Equity and How Much You Own
This is also a term you'd need to be aware as a mortgage payer. In short, equity means how much of the propriety you actually own. In Mathematical terms is the current value of the home minus how much you still owe for it. Equity grows with the monthly payments you are making. You buy more of the house, so you also own more of it and its value.
Escrow to Make Sure
You have probably heard of escrow before. It is a broadly used term and it means the amount of money you need to pay upfront for the home to be kept for you. Some houses need to pass inspection, for example. The seller needs to be sure of your acquisition, so he or she requires an escrow till the payment is made in full.
It is good to own your own home and not having to worry about rent each month. Paying a mortgage is something anyone with a family or a plan for the future could do.