Mortgage Basics

Finding the right mortgage can be a daunting task. Relying on your lender to do it for you is a perfect way to get a mortgage that is overpriced and doesn’t fit your needs. The best course of action is to arm yourself with information before you start shopping around for a mortgage. Below I have outlined some of the basics in mortgage terminology to get your feet wet.

1. Fixed Rate Mortgages: A mortgage for which the rate of interest is fixed for the term of the loan.
2. Adjustable Rate Mortgage: A mortgage for which the interest rate is periodically adjusted to coincide with current rates. The rates can be adjusted as much as every month; the amounts and times are agreed to in the terms of the loan agreement.
3. Term: The period used to calculate the mortgage payment. The term determines how much you will pay each month: the longer the term, the lower the monthly payment and vice versa. Fixed rate mortgages have terms that vary from 10 to 40 years, whereas adjustable rate mortgages are usually only offered in 30 year terms.
4. Point: Points are the fees you pay the lender at the time the loan is closed – they are expressed as a percent of the loan. For example, on a $500,000 loan, one point means a payment of $5,000. The more points you pay, the lower the interest rate.
5. Lock: The period during which the lender guarantees the rate and points for a loan. Generally, the shorter the lock period, the lower the points and the price. You choose when to lock and for how long.

Now that you know the basic mortgage terminology, you are ready to have a real discussion about your mortgage options with a lender.