3 Terms Every Mortgage Holder Must Know
Getting a mortgage can be a very confusing process. There is a lot of paperwork to sign, documents to read and procedures to be followed. You’d think you were applying to go to Harvard or Yale, except they don’t require that much paperwork for you to be admitted! Although getting a mortgage can be a confusing process, there are three terms that every mortgage holder should know to better understand what he or she is getting into.
So if you learn just a few important things before signing for a mortgage, this will serve as a great aid to you and help you get through the process.
So now, the first thing you need to know is what the word “term” means. This refers to the actual length of time you are taking the mortgage out for. Or otherwise the number of years or months you will be making payments.
Many mortgages run the gauntlet of between ten and thirty years. The longer the mortgage, typically the lower your monthly payment will be (and the more interest the mortgage company makes). Generally speaking, you should go for the shortest term you can comfortable afford – you’ll save potentially tens of thousands (and in some cases potentially over a hundred thousand) dollars in interest by keeping the length of the mortgage as short as you can.
The next thing you should know and understand is the interest rate and how it will be calculated. The interest is what you will pay as the cost for borrowing the money for your mortgage. Often you will see that it is told to you in decimals like 5.2 for the rate of 5.2%. Something important for you to know is if it is a fixed rate or is it adjustable. If you are quoted a fixed rate, this means it will never change for the entire term of your mortgage. However, the adjustable is exactly what is sounds like. It will adjust at certain periods of time and your monthly payments will go up with it. Even though it may look good at first, many have been shocked at the adjustment and caught off guard. For that reason I feel it’s best you stick with the fixed rate mortgage to avoid surprises.
Last and certainly not least, you have to know what the closing costs are and how it will affect your overall costs to buy a house. Since in most cases this is money you will be paying, you want to know what they are for and find out if it is really necessary. Closing costs cover fees for the appraiser, attorney, notary, deed and a variety of other related costs. However, you as the customer want to be alert here since this is where many lenders will hide “junk fees” to increase their bottom line. It is vital that you ask questions and have each fee explained to you line by line.
By your understanding these three important terms, you will be well informed as the home buyer and will be able to find the right mortgage. Just like when you buy a car, you will want to shop around for a mortgage. If you can save on the interest rate and closing costs, this can result in a savings of thousands of dollars to you. Even if it is a small percentage on the rate, over thirty years it adds up. So always keep in mind, you are the customer, everybody works for you. Shop around.
Closing costs are the least understood in the mortgage process. As the potential customer, you need to understand every aspect of this transaction. So take your time and feel free to ask any questions you may have. Hopefully you have a person that explains things well, if not ask everything that comes into your mind since there are no bad questions. This can help you feel good about the decision you make.