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Mortgage Basics

  • What is a mortgage? – A mortgage is a long-term loan for property.
  • 30-year-fixed rate – The most traditional and common mortgage is the 30-year fixed rate. Although interest is higher than other loan types, your interest rate and payment will remain fixed for 30 years with this type of loan. There are also 15-year and 20-year variations on this mortgage type.
  • Adjustable Rate Mortgages (ARMS) – These types of mortgages typically start at a lower rate and the interest rate adjusts every year.
  • Down payment – Lenders usually require a down payment from borrowers. A traditional down payment is 20% of the mortgage total. Some loans require less, and there are programs to help first time buyers and people with low and moderate incomes buy homes with smaller down payments.
  • Points and closing costs – There are one-time taxes and fees required to make a mortgage. These costs are charged when you apply for a mortgage or at closing, when the loan becomes official. An optional cost is to buy points from the mortgage lender. These points reduce the interest rate and thus the monthly mortgage payments. Each point costs the equivalent of 1% of the loan amount.
    A quick list of some possible additional fees that may be part of closing costs:

    • Loan application fees
    • Credit reports
    • Lender’s origination fee
    • Property survey fees
    • Home inspection fees
    • Recording fees
    • Pro-rated interest until the first payment
    • Taxes
    • Escrow, title and attorney’s fees
  • Principal – Principal is the actual amount you borrow from the lender.
  • Interest – Interest is the amount the bank or lender charges you to use their money.
  • Equity – Equity is the term used to describe the difference between the market value of a home and the balance that is owed to a lender for that home.

 

Last modified: April 11, 2011 at 3:51 pm