Unit 3: Getting
a mortgage may be easier than you think!
Lesson 1: What you should know about
When you shop for clothes or food, you
compare prices. When you shop for a loan, you must compare
the terms of the loan. The terms of the loan include
the type of mortgage, the size of the down payment, the
amount you can borrow, the interest rate, and the length
of time you have to repay. When you call different mortgage
lenders about their terms, these are some definitions that
you should know.
Principal is the amount of money
that you actually borrow or the amount of the loan that
is still unpaid.
Interest is the charge for using
the lenders money. Lenders often change their rates
daily. In addition, they have different rates for different
Fixed-rate mortgage loan means
you always pay the same rate of interest.
Adjustable-rate mortgage (ARM) loan
means your rate will increase or decrease usually once or
twice a year.
Term is the amount of time that
you have to repay the loan. People often choose a term of
30 years to repay. Generally, the more time you have to
repay the loan, the lower the monthly payments will be.
Points refer to a type of fee that
lenders may charge. Each point equals 1 percent of the loan
amount. One point on a $50,000 mortgage loan equals $500.
The more points that you pay on the loan, the lower the
interest rate is. You pay the points only once, on closing
Down payment requirement is the
lenders lowest allowable down payment and is the part
of the purchase price that the buyer pays in cash.
Closing costs are the expenses
buyers and sellers pay to transfer ownership of a home.
These expenses are in addition to the sales price of the
property. Closing costs can include the loan application
fee, title fees, and attorney fees. The law says the lender
must give you a statement of the estimated closing costs
within 72 hours of when you apply for a loan.
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