More Essential Mortgage Terms To Know
We know that the prospect of buying a home is exciting, but often overwhelming. You come in with a budget or monthly payment in mind, only to find that real estate loans have a language all their own. And understanding these variables and how they impact the mortgage process is necessary to identify the right loan product for your new home.
In a previous post, we shared a handful of the most common mortgage terms you need to know when buying a house. Now we’re back with a few more acronyms and phrases to make your home buying process smoother and less stressful.
Annual Percentage Rate (APR)
When it comes to loans, the first variable that comes to mind for many of us is rate. As you compare your mortgage options, considering your annual percentage rate can go beyond just the percentage of interest over the life of your loan. Factors such as the current state of our economy and whether your rate is fixed or variable can play a role in the overall cost of your mortgage repayment. We covered the “ABCs of APR” in a previous entry on our Financial Insights blog.
Traditionally, mortgages have been a more long-term financial investment with loan terms lasting a minimum of 30 years; in more recent times, mortgage terms lasting as few as 15 years have provided homebuyers with options in how long they plan to finance their home. While shorter terms can provide flexibility, it’s always best to speak with your trusted loan advisor to determine what would mortgage terms are best for you and your goals.
As you compare your mortgage options, discussing the size of your down payment can really set the tone for your loan. For some mortgage programs, a down payment is required as part of your purchase; in some cases, it can be optional. Your down payment can provide a number of benefits such as lowering the overall balance of your mortgage and APR.
Fees and Penalties
As you navigate through your home purchase, you may discover a number of listed fees and penalties in your mortgage loan estimate. Fees applicable to your purchase may include property-related fees, legal fees or escrow that are disclosed prior to closing and often included in the total out-of-pocket costs due at the close of your mortgage process. While these fees can vary depending on your purchase price, lender, and location of your home, it’s important to factor in these variables when considering the total cost of your purchase.
Private Mortgage Insurance (PMI)
Not to be confused with homeowners insurance that you pay to your insurance company, mortgage insurance (or PMI) is often required by your lender to protect them in event of a loan default and is another cost for you to consider when comparing mortgage options. PMI is typically added when a down payment of less than 20% is required and added to your monthly mortgage payment. Check out this previous Financial Insights blog post to learn more about mortgage insurance.
Your Knowledge & Preparation Are Keys To A Smooth Closing Process
Now that you have a deeper understanding of the variables involved in your mortgage loan, you’re ready for our Mortgage Purchase Checklist! This free tool helps ensure that all T’s are crossed and I’s are dotted in your home buying process.
Use your knowledge of the above terms and this handy checklist to be confident as you search for and purchase your new home!
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