Contracts can be confusing and densely concentrated with information. That is why before signing a contract of any kind its contents should be well researched and thoroughly understood. This is especially true when considering mortgages for a newly purchased home. Consumers should be informed on the multitude of mortgage terms that accompany the documents and processes of obtaining a mortgage for their home. As a starting point, homeowners should familiarize themselves with the general mortgage loan terminology.
When obtaining a loan, an originator is needed. An originator is a mortgage creditor, like a bank or credit union, who funds loans. Borrowers must first be pre-approved by a mortgage broker. For the pre-approval process, a borrower’s credit report and score are inspected. The score and report are used to inform mortgage companies how well or poorly the borrower deals with their debts. Those with good reports and scores have the best mortgage rates available to them. For home loans, it is best for homeowners to look into what the current mortgage rate is in order to receive the best deal.
Besides knowing what the current mortgage rate is, it is important for homeowners to know the different types of home loans available to them. A select number are:
1. Government Loans
The greater part of loans stems two government programs: the Veterans Administration and the Federal Housing Administration.
2. Fixed-rate Mortgage
Just as the name suggests, fixed-rate mortgages have interest rates that do not fluctuate; instead, the rate stays the same throughout the entire duration of the loan. With this type of mortgage, the borrower is safeguarded from increasing rates.
3. Reverse Mortgage
Reverse mortgages are designated for those that are 62 years or older. With this type of mortgage, borrowers receive payments based upon the equity in their home. The total amount of the payments will never exceed the amount of equity the home holds and borrowers (or their families) will not have to repay the mortgage unless the home is no longer the main residency or death occurs.
4. 100% Mortgage
For those that either have small amounts of cash or none at all, a 100% mortgage may be fitting. This mortgage allows borrowers to purchase a home without having to pay a down payment. In place of the down payment, borrowers guarantee stocks and bonds to secure the loan.
5. Second Mortgage
Homeowners may choose a second mortgage as an option for a variety of reasons. A second mortgage can be taken out in order to make home improvements, consolidate existing debt, or finance a second residence. The home must be used as security for the second mortgage. Thus, the original mortgage will be paid first if the second mortgage becomes default.
6. Interest Only Mortgage
Interest only mortgages require homeowners to make mortgage payments to cover the monthly interest only.
To evaluate and compare loan products, homeowners should consult an annual percentage rate. This rate, which is stated as an annual rate, is actually a representation of the total amount of a mortgage. The components of an annual percentage rate are the originating charges, discount points, and prepaid interest. When closing occurs, the lender charges prepaid interest, or mortgage points. One percent of the total sum of the loan equals one point, and so on.
With such a wide variety of loans to choose from along with the many documents that accompany them, homeowners should become well acquainted with the terminology of mortgages. The knowledge gained from learning the terms can greatly help borrowers make educated choices concerning which type of loans and products are best for them. Learn more interesting facts on eHome Mortgages.