If you have enough money saved to purchase one on a cash basis owning your very first house for your family is very easy. You will need to get a loan to be able to afford to purchase a house however, if you are like the average American. In choosing the best loan that you can afford there are different terminologies that you need to know regarding home loans that may help you. Here are the different terminologies
You are actually applying for a mortgage when you are planning to purchase a house on a loan. For any real estate a mortgage is a loan that you can avail in order to pay. This includes the house and any land where the house sits on. For your loan the house and the land that you are purchasing through a mortgage loan will be used as collateral. In order to cover your missed payments this means that if you are not able to make your loan payments anymore, the lending institution such as the bank who gave you the mortgage has the right to take your house and land away.
To the loan payments themselves other terminologies that you need to understand are related. By a home loan calculator the amount that you have to pay regularly on you loan can easily be computed. Even if you will use a home loan calculator, you must know the different terminologies associated with computing for the amount that you have to pay regularly however. Here are the following terminologies:
Principal. The principal is the term used for the actual amount of money that you are loaning in order to purchase the real estate of your choice. This is the amount of money the bank will allow you to use so that you can purchase the house that you want.
Interest. The amount that the bank will charge you for using their money to purchase your home is the interest. From investing their money on your real estate project the interest is the amount that the bank will earn. As a percentage of the principal loan amount the interest rate given to mortgages is computed. To the smaller banks larger commercial banks may offer lower interest rates on loan as compared. On current economic indicators interest rates also depend.
For loans may be fixed or adjustable depending on the lending institution giving out the loan interest rates. Throughout the term of the loan fixed-rate mortgages offer a set rate of interest that will not change. Through your loan amortization will vary each month, the total amount that you will pay (principal and interest) remains the same although the amount you will pay. For homeowners who are on a budget this type of mortgage is ideal.
Adjustable-rate mortgages on the other hand have interest rates that vary over time. The initial interest rate offered for this type of loan is given at a lower rate than a fixed-rate loan. However, as the loan term progresses, the interest rate rise until the interest rate surpasses those of the fixed-rate loans.
Term. To pay the lending institution the amount of money that you borrowed from them to purchase your home the term is the amount of time that you are allowed. From a fifteen-year to a thirty-year term because purchasing a home requires a large amount of money; lending institutions and banks usually give out mortgage loans.
Amortization. Amortization is the terminology given to the process of dividing the total amount of mortgage (principal + interest) into equal payments over the term of the loan. The payments that you pay regularly through amortization will go toward the payment of the interest during the earlier part of the term. Later payments through your amortization will then go to the payment of the principal amount.
Knowing these different terminologies will enable you to understand better how home mortgages work.
To understand better how home mortgages work knowing these different terminologies will enable.
Article by John Hoots of Chicago, who is a specialist in real estate investments. For more information on mortgage in Chicago, visit his site today.