So you’ve decided the time is right to become a homeowner, trading in your rent payments for mortgage payments. Maybe you’ve been a homeowner before, but are looking into getting a new mortgage loan. Whatever the reason, you now find yourself in an unfamiliar world of confusing jargon. Fear not! Here is a quick primer on how you can better understand mortgages, so you can talk about them more intelligently.
Understanding the language
Here are a few of the most common mortgage-related terms you should understand:
APR, or Annual Percentage Rate: The APR is the stated annual cost of your mortgage, including interest and fees. This figure will be higher than the interest rate you lock in with your lender.
Escrow: The escrow account is where certain funds, such as money you put down as earnest money, are held until the home sale is finalized. After you close on your mortgage, you may also have an ongoing escrow account with the mortgage lender where things like homeowner’s insurance and property taxes are collected as part of your monthly mortgage payments and then forwarded to your insurer or taxing authority on your behalf.
Fixed Rate Mortgage: With a fixed rate mortgage, your interest rate remains the same for the length of the loan, so your payments remain steady over that time period, too.
Adjustable Rate Mortgage: With an ARM, your interest rate will go up or down periodically based on a standard financial index, so your payments will change.
Closing Costs: These are the costs that come with “closing” the mortgage application process, when ownership is transferred. These may include origination fees, taxes, title insurance, escrow payments and sometimes discount points. Closing costs are above and beyond the price you are paying for the home.
What to ask your mortgage professional
Now that you know the jargon a little better, here are some questions to ask your mortgage professional:
- What is the interest rate for my mortgage?
- How many “points” are included in the interest rate?
- What are the estimated closing costs, and are there other fees I need to be aware of?
- When can I “lock in” the interest rate?
- When will closing happen? What can cause a delay in closing?
- Will my new mortgage be a fixed rate or an adjustable rate loan?
- Is there a prepayment penalty on the loan?
Armed with the answers to these questions, you will be in a better position to evaluate the proposed loan, and to feel more confident when you are talking about your mortgage.
To learn more, and to find out why residents of Celina, Ft. Recovery, and Greenville have been choosing Mercer Savings Bank for mortgage loans for more than 125 years, contact us today.