Mortgage Terms Explained
When applying for a mortgage, it is vital that you know the words that are utilized. There are various alternatives available and it is the job of the mortgage broker to make sure that their customers understand everything their mortgage has to provide. Below are several basic mortgage terminology which would help you know your new or current mortgage.
The term of the mortgage is the number of years or months that you would be required to pay a particular rate to the lending institution. Terms would generally range from 6 months to a year. The payment frequency is the frequency in which you repay your loan. There are some choices available, including semi-monthly, monthly, weekly or bi-weekly payment plans.
Amortization refers to the number of years it would take using fixed payments before the loan is completely paid off. Each payment includes both the principal payment together with the interest amount.
An open mortgage can be paid off completely at whatever time without penalty, while a closed mortgage can't be paid out without the customer being subject to a payout penalty. The payout penalty, which is incurred by a client when they pay out their mortgage ahead of time, is determined by either an interest rate differential or 3 months interest, whichever is higher.
A mortgage where your interest rate stays fixed for the whole term is known as a fixed rate mortgage. An adjustable rate mortgage is occasionally offered at a discount off prime, but the interest would change depending on the prime rate. The lowest rate the bank would lend money at is the prime rate.
A Home Equity Line of Credit is when part or all of the mortgage is held in a line of credit. This type of mortgage is often re-advanceable. Hence, when you repay the mortgage, you can then borrow it again.
Mortgages are known as conventional when the borrower makes a downpayment of over 20%. A high ratio mortgage has a downpayment of less than 20% and requires mortgage insurance to make sure that the customer doesn't fail to pay the loan. Mortgage insurance is in place to be able to protect the lenders and banks.
This is the basic information that every consumer needs to know prior to entering into a binding agreement and must help you understand your financing alternatives better. If you have any questions, it is vital that you address them to your mortgage broker. It is their task to make purchasing a house as seamless and efficient as possible.
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