What You Need To Know Before Applying For A Mortgage
By Millie Panjwani
You should be familiar with a number of terms and conditions when you are applying for a mortgage for the first time. It helps you to make the right choice when you are buying a home. Your property merely acts as a security when you enter into a mortgage contract. You must ensure that payments are made regularly and on time.
Firstly, you must know what “principal” is. It refers to the sum of money used to pay for your property. A down payment has to be made initially instead of paying off the whole amount of money. The down payment is determined by the cost of the home and is deducted from the amount payable as principal. When the principal is paid, you acquire ownership of the home.
Secondly, you must know what is meant by the term “interest”. Interest refers to the payment made for the use of borrowed money. Interest payments are usually made on a monthly basis. In addition to the interest rate, you may also be charged for “points”. This refers to a percentage of the total principal. Monthly payments are made in the form of principal and interest. This is called “Amortization”. It is when your loan decreases over a specified period of time.
A certain amount of your mortgage payments can be accumulated in an escrow account. This can be used to cover expenses including taxes, insurance and miscellaneous expenditure. Taxes are compulsory payments made by persons to the government in the common interest of all without reference to any special benefits conferred. Tax incurred on your home is known as property tax. This money collected is used in the construction of public utilities, roads, schools. All homeowners cannot evade this type of tax.
Another very important and common term you will come across in the real estate field is “Insurance”. It is essential to have insurance for your home, or else it would be difficult to acquire a mortgage. There are various types of insurance available. Insurance for your home compensates for loss due to theft, natural calamities, fire or other problems. It is also better to have insurance for your home if you cannot afford to pay for the repairs of your home.
You may have to pay additional premiums on your insurance if the down payment for your home does not exceed 20% of the total value of your home. This protects you in case you are unable to make payments on time. You can cease to pay your insurance premiums after you have cleared about 80 percent of the payment for your home.
These are the most important terms you should be familiar with before you buy a home. Understanding these concepts will let you steer clear of many of the drawbacks that prevail in the real estate community. Acquiring a fixed interest rate is more advisable as you can concentrate on making payments towards the principal. This way you can clear your loan easier and quicker. You must buy a home keeping in mind your financial budget, because if you fail to make payments you may lose your home. A mortgage forms a significant part of your financial image.
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