What are adjustable rate mortgages and what is the difference between a biweekly mortgage and fixes-rate mortgage? Before thinking about getting a mortgage, it’s important to learn the mortgage glossary.
Annual Percentage Rate
This rate (also called APR) is a measure of the cost of a loan and is expressed as a yearly percentage. People who are getting a mortgage can use this rate in order to compare the costs of loans and mortgage plans. Imagine that a mortgage has an APR of 10%. This means that borrowers pay $10 per $100 borrowed annually.
Don’t be fooled by just comparing different annual percentage rates and choosing the lowest rate. One APR can include private mortgage insurance while another APR does not. Be wise and compare apples with apples.
Adjustable Rate Mortgages
These mortgages (also called ARMs) are home loans that do not have a fixed interest rate but have a rate that varies. During the loan the interest rates will change and so will the monthly payments, typically every six months or every year. This means that loaners can start with a low monthly payment but when interests rise, the payment can increase dramatically. To minimize the risks, get an ARM with a cap. This is a restriction on how much an adjustable rate mortgage can actually change.
Biweekly Mortgage
A biweekly mortgage expects loaners to pay a sum every two weeks instead of once a month. This means that they will have paid 13 times by the end of a year. The amount of interest to be paid on the loan can thus be lowered and the loaners save a lot of money.
Co-signed Account
A co-signed account is an account that is signed by another person apart from the primary borrower. This account makes both people responsible for the amount of money that will be borrowed.
Down Payment
Down payment is the portion of the purchase price of a home that is paid in cash and is not a part of the mortgage loan itself. When a down payment of less than 20% is made, it’s required to get a mortgage insurance.
Escrow Account
An escrow account is a trust into which the lender puts a part of the monthly mortgage payment. The escrow account then provides the funds to pay for things like property taxes and insurance premiums.
Fixed-rate Mortgage
Fixed-rate mortgages have, as opposed to adjustable rate mortgages, a fixed interest rate over the life of the loan. The monthly mortgage payment thus never changes. These loans may be a bit more expensive but they don’t entail the risk of the monthly mortgage payment suddenly increasing, as can be the case with adjustable rate mortgages.
Mortgage Amortization Schedule
The mortgage amortization schedule is a schedule which shows a schedule which shows how much of each monthly payment goes to principal and how much to interest. It also shows what the balance is after each payment. The amortization can be calculated at home with a free online mortgage calculator.
Study the Mortgage Terms
Not sure what the real estate broker means? Don't get tricked into anything and look for the definition of everything that is not clear before making decisions about getting a mortgage
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