Everyone knows that you should never sign a contract without first reading it. This is especially true of signing into a loan because you could end up losing a lot of money if you do not understand what you are signing. There are several terms that you should know and also understand how they will apply to your specific situation before you ever sign on the dotted line.
Interest Rate – The interest rate is the percentage of your loan that is added on every month and this rate will vary according to the economy and your credit. The interest rate will make a difference in your monthly payment. The higher the interest rate is, the higher your monthly payment is going to be.
Fixed Rate – A fixed rate is an interest rate that will remain the same for the entire length of your loan.
Variable Rate – A variable rate will change according to the economy and the charts that state what the rates should be for interest. A variable rate will usually change every year and will adjust according to a specific given range of percentages.
Principle – The principle is the amount of money that you will be paying on your actual house. The amount that you pay on your principle is what you will see in the end as your investment.
Escrow – The escrow is very similar to a savings account of your loan. The amount that you put in escrow will accumulate without paying directly into the loan. At the end of the term, you can use it to finish paying off the loan or you can invest it in another loan. This is also how most home owners choose to pay for their home owners insurance and the taxes each year.
Title – The title is an official piece of paper that will be issued to you after you have finished paying for your home. The title will state that the property belongs to you.
Deed – A deed is most often used as a title for a commercial area. Instead of giving ownership, it will show that the given property is leased to the person who is using it as a business.
Home Equity – This is a lone or line of credit that you can get for your home. It will finance up to eight percent of your other loan and will be paid back at a later date. This is a good loan to use if you want to consolidate loans or invest more into the property.
Appraisal – An appraisal is an estimated value of what a home is worth and is determined after an inspection of the home is made.
Equity – Equity is the actually amount of the property that you own, most likely, it is what is being paid off of your principal amount when you make your monthly payments.
It is important that you know the meaning of these basic terms so that you will be able to expand on your knowledge and be able to find the exact loan that will best fit your needs.
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