Home Equity Loan Basics

 

Notivku, If you are preparing to apply for your first home loan, you need to understand the basics of home loans.

Home Equity Loan Basics

When you apply for a home loan, you need to understand the terminology. Let's start with the most basic terms.

1. Trees are simply the amount you borrow to move into your dream home. If you apply for a loan of $ 250,000, the amount that the bank actually gives you is the principal amount.

2. Interest-every home loan comes with an interest rate. The interest rate is the amount that the lender charges you to borrow the principal of the loan. Interest rates are usually the key to loans because there are different types of loans that have flexible interest rates that change every year, several years, or remain fixed over time. In general, you want to minimize interest rates as much as possible.

3. The loan term is simply the number of months you have to pay back the money you borrowed from the lender. For example, a fixed-rate mortgage for 30 years implies a period of 360 monthly payments that must be made over 30 years. Don't worry, there are loans with shorter terms.

Repayment

Amortization is not just a bait, but rather the only term that can confuse you during the lending process. First-time home buyers often mistakenly assume the same amount of interest and principal will decrease with each loan payment. Unfortunately, lending institutions do not want to do it this way, which leads us to amortization.

With amortization, lenders typically use many of your mortgage's initial payments almost entirely for interest on the loan owed. If your loan asks for a monthly payment of $ 1,000, the first payment may incur $900 in interest and only $ 100 is charged on the principal. Over time, the amount paid on principal will increase. Yeah, that's annoying.