Mortgage Loan – Understanding The Language

Taking a mortgage loan for your home or property could be nerve wracking and frustrating. A lot is at stake here if you make mistakes. It has been said again and again to shop for mortgage loans and compare not just two or three but if possible more than six lending companies. In that way you get a lot of important information that will be crucial to the decision you will make. But the problem now is what to look out for and where to begin specially for first time borrowers. It is easy to get lost on all those lingo and terminologies that are foreign to your ears. Now, how do you expect to understand and be able to make wise decision if the language and terminology are alien to you? This article will help you understand the terms often used in the world of mortgage loans to better equip you in your search for the right mortgage loan.

Mortgage Loan is an agreement between the home owner and the lending company wherein a property is place as a security for a loan. The property could be a house, land, or a building which is used as collateral for a loan.

Amortization Period. This refers to the length of time of the entire mortgage, until when the loan is expected to reach its maturity date. Amortization period usually is set for 25 to 30 years of loan maturity and can be extended for up to 40 years. Extending the amortization period would mean getting a low monthly payments but it is important to note that you end up paying for more amount of interest. Instead of paying interest for 25 to 30 years, you will pay for an additional interest for another 10 years.

Term of Mortgage refers to the actual mortgage term which could be from 1 to 5 years. This is the present interest rate and type of mortgage loan that you have applied at that specific time.

Closed Mortgage Term. It requires you to pay the mortgage until the loan reaches it maturity date or amortization period. If you fail to pay, penalties will be charge on you. In this system, the longer the term of your mortgage would incur a higher interest rate thus you will have to pay more.

Open Mortgage Term is best for lenders who plan to sell their house before term matures and those who are expecting to have huge money to come to them. This system allows you to pay your mortgage in between amortization period without being charge any penalties.

Adjustable Rates Mortgage, This is a mortgage where interest rate is not fixed but rather it would increase or decreases depending on the index rate. There are risks involved but on the other hand if the interest rates fall then it would be advantageous to you.

Fixed Rate Mortgage. Interest rate doesn’t fluctuate or changes. It is fixed until the loan reaches its maturity period.

Before you sign any papers make sure you understand every word in the contract. It is important that you know the whole picture regarding the mortgage loan you have taken. Since so much is at stake, you just cannot afford to make mistakes and every mistake you make will be very costly since you will end up paying more.