If you have enough money saved to purchase one on a cash basis owning your very first house for your family is very easy. You will need to get a loan to be able to afford to purchase a house however, if you are like the average American. In choosing the best loan that you can afford there are different terminologies that you need to know regarding home loans that may help you.
To purchase a house on a loan, you are actually applying for a mortgage when you are planning. In order to pay for any real estate a mortgage is a loan that you can avail. Where the house sits on this includes the house and any land. Through a mortgage loan will be used as collateral for your loan the house and the land that you are purchasing. The lending institution such as the bank who gave you the mortgage has the right to take your house and land away in order to cover your missed payments this means that if you are not able to make your loan payments anymore.
Other terminologies that you need to understand are related to the loan payments themselves. The amount that you have to pay regularly on you loan can easily be computed by a home loan calculator. However, even if you will use a home loan calculator, you must know the different terminologies associated with computing for the amount that you have to pay regularly.
For the actual amount of money that you are loaning in order to purchase the real estate of your choice the principal is the term used. To use so that you can purchase the house that you want this is the amount of money the bank will allow you.
Interest. The interest is the amount that the bank will charge you for using their money to purchase your home. The interest is the amount that the bank will earn from investing their money on your real estate project. The interest rate given to mortgages is computed as a percentage of the principal loan amount. Interest rates placed on loans may vary from bank to bank. Larger commercial banks may offer lower interest rates on loan as compared to the smaller banks. Interest rates also depend on current economic indicators.
Interest rates for loans may be fixed or adjustable depending on the lending institution giving out the loan. Fixed-rate mortgages offer a set rate of interest that will not change throughout the term of the loan. Although the amount you will pay through your loan amortization will vary each month, the total amount that you will pay (principal and interest) remains the same. This type of mortgage is ideal for homeowners who are on a budget.
Over time adjustable-rate mortgages on the other hand have interest rates that vary. At a lower rate than a fixed-rate loan the initial interest rate offered for this type of loan is given. The interest rate rise until the interest rate surpasses those of the fixed-rate loans however, as the loan term progresses.
Term. To pay the lending institution the amount of money that you borrowed from them to purchase your home the term is the amount of time that you are allowed. From a fifteen-year to a thirty-year term because purchasing a home requires a large amount of money; lending institutions and banks usually give out mortgage loans.
Amortization. Over the term of the loan amortization is the terminology given to the process of dividing the total amount of mortgage (principal + interest) into equal payments. Through amortization will go toward the payment of the interest during the earlier part of the term the payments that you pay regularly. To the payment of the principal amount later payments through your amortization will then go.
PITI. The payments that you make regularly towards the fulfilment of you mortgage is not always the combination of the principal plus the interest. The acronym PITI stands for principal, interest, taxes, and insurance which are included in the amortization of your real estate loan. However, you can avoid paying for mortgage insurance by negotiating it with your lender.
Knowing these different terminologies will enable you to understand better how home mortgages work.
Article by John Hoots of Chicago, who is a specialist in real estate investments. For more information on Chicago mortgage brokers, visit his site today.