Points equal up to 1% of your loan and are paid at the beginning of your loan. The more points paid, generally the lower the interest rate.
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The first terms you will come across in determining the conditions you want
for your mortgage are fixed and adjustable.
- Fixed rates are constant through out the repayment of your loan and give
you the stability of knowing your monthly payment will be the same at the
end of your loan as they were at the start.
- Adjustable rates are less predictable because they adjust with current rate
indexes and can rise or fall as your repayment period progresses. The lessened
stability of this loan is balanced out by lenient qualifying, low introductory
rates, and the knowledge that an adjustable rate loan has a cap, or ceiling
to keep the rate from rising too high.
Other basic but important terms to understand are:
- Principal is the amount borrowed (on which interest acts) which is repaid
- Amortization is the process of repaying the amount borrowed through monthly
payments of principal and interest.
- Negative amortization is when the monthly payment is not high to adequately
pay the loan off. In this case interest builds too quickly and the principal
grows instead of decreasing. This can occur because of lender scams or because
of monthly payment caps.
- Equity is the value of your house left over after subtracting the total
of your mortgage. If your house has a market value of $130,000 and a mortgage
of $100,000, the equity is $30,000.
- An index is used to determine the rate on an adjustable rate loan. For some
loans this rate may be the Prime Rate or the average rate of a one year Government