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Have you been looking at buying a new home? This is actually a great time to be purchasing a home since the housing market is quite sluggish and prices are low. Not only can you get a great price on a home but you can also get a good mortgage with a low interest rate. There are also quite a lot of homes to choose from at the moment making it a buyer?s market. But if you are looking at buying a new home you should do your homework and get a good understanding of the terminology that you will soon come across when dealing in the real estate market.
These are some of the mortgage terms that you are likely to hear: interest rates, length or term of loan, closing costs, variable rate loans, fixed rate loans, document taxes, acceleration, origination fees, home equity, amortization, conventional financing, FHA loans, VA loans, points, down payment and private mortgage insurance (PMI).
The interest rate is one of the important terms that you need to understand as this is the rate at which the lender will charge your repayments. This is generally expressed in terms of a percentage of the loan so the lower the interest rate is the lower your repayments will be. The length of the loan is generally referred to as the term of the loan and this is the entire period that you have to pay the loan off. Most mortgages will be taken out for a twenty year term with some lenders giving up to a thirty year term.
The closing costs of the loan take into account all the fees that are part of buying and selling the home. These fees will include title insurance fees, cost of necessary repairs, realtor?s fees, document stamp tax, points and some other costs.
Then we have fixed loan rates and variable loan rates and these are the two options that you usually choose from. A variable rate loan means that the interest rate can go up or down according to the currently state of the economy. If the interest rates fall then this is a big advantage for you, the borrower, but if the interest rates rise so will your repayments. A fixed rate loan is when the interest rate is fixed for a specified term, usually five or ten years and in some cases the length of the loan. With a fixed rate loan the interest rate, and therefore your repayments, will always stay the same.
The term ?points? refers to loan discount points and these are the fees that are charged to the buyer from the lender. These are often referred to as prepaid interest and can add to the closing cost amount. A point is equal to one percent of the total loan amount. For example, if you are borrowing $300,000 and are charged one point by the lender then you would have to pay $3,000 or prepaid interest at the time of closing.
Private Mortgage Insurance, or PMI, is an insurance that enables the buyer to make a smaller down payment on the home that they are buying. Lenders usually require a buyer to put down a payment of 20% but if you wish to put less than 20% down then you will be required to take out private mortgage insurance. The down payment is the deposit that you pay out of your pocket toward the purchase of the home. When you borrow money your mortgage will be the price of the home minus your down payment.
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