Understanding Lending Terms

There is nothing more exciting than purchasing your first home, but this is a very stressful experience. The more you know about home mortgages and financing, the better off you will be. There are many terms that lenders will use all of the time, but you may not know what they mean. The following is a list of definitions that will help you be able to understand what your lender is talking about.

Adjustable Rate Mortgage – A mortgage loan that has an interest rate that changes periodically based on an index. This means that your monthly payment will also change when your interest rate changes.

Amortization Schedule – A table used to detail how each of your monthly payments is being applied to your loan. A portion of your monthly payment each month is applied toward the interest (a major portion at the start of the loan) and principle (most of the principle is paid at the end of the loan).

Assessment – The value of your property.

Basis point – Term used to explain the differences in yields in mortgages. This is usually 1/100 of 1%.

Buy down – A buyer will be allowed to obtain a lower interest rate on their loan by "buying down" points.

Cap – The most that the interest rate on your home can increase or decrease during a certain amount of time.

You do not have to let buying a new home scare you. If you understand what the lender is talking about you will be able to purchase the home of your dreams with little or no stress.

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