4 Important Mortgage Terms A Real Estate Buyer Should Be Aware Of
Annual Percentage Rate (APR) is an annual computation on your mortgage that measures both the interest rate charged and any other additional costs such as origination fees and points. APR appears to be more costly than the advertised interest rates because of the added cost factors. APR reveals the true cost your mortgage. It can also help you to evaluate the cost of mortgages from various loan providers.
Closing Costs refer to the countless expenses which you have to pay as well as the agency fees you will need to endure in connection with each transaction involving the property. The closing costs in many cases are shared between the buyer and the seller, this normally is dependent upon the terms of the agreement. When you purchase a home, these costs could include items such as origination fees, title insurance charges, legal fees as well as the discount points that you pay in advance to get a lower rate of interest on your mortgage. They could include payments made to local and state government. The closing costs varies between 2% and 6% of the transaction value. It is, for that reason, crucial that you know the details of the closing costs.
Among the most common forms of mortgages is the Fixed-Rate Mortgages. The interest rate in the traditional fixed rate mortgage will remain the same for the entire life span of the loan be it 10, 20 or 30 years. The life of the loan depends on factors like the need and the capacity to repay. The advantage of this sort of mortgage is you know precisely just how much you will need to pay back on a monthly basis and this also provides you with the protection of knowing that your payment will not change and lets you handle your hard earned cash accordingly.
As opposed to the fixed-rate mortgage, the ARM Loan or the Adjustable Rate Mortgages carries a rate of interest that varies during the life of the loan. The rate of interest at the start of this mortgage is normally lower compared to that of the fixed-rate loans. Nevertheless, the interest rate is linked to benchmarks according to a market index and when the index goes up or decreases, your interest rate and thus your payments will vary at every scheduled adjustment date. Typically, the absolute maximum interest rate is restricted by rate caps and it is important to know what these caps are to enable you to determine if you can still pay the loan payment if interest rates surge to the level of the caps.
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