- Term: this is the total number of years it takes to pay off the mortgage. For example, a mortgage might have a 15, 20, or 30 year term. Some loans amortize over 40 years, with a balloon payment due after 30 years. The longer the term, the lower the payments. But longer terms usually mean you end up paying more over time.
- Principal: the total amount of money you are borrowing.
- Interest rate: this is the cost of the mortgage. The lower the better.
- Years with fixed interest rate: the interest rate can be fixed for as little as 1 month or as long as 30 years. As long as the interest rate is fixed, your monthly mortgage payment should stay the same. Make sure you understand how long your interest rate is fixed and then how much it can increase.
- Points: money you pay up-front to lower your interest rate. One point costs 1% of your mortgage. If you pay 1 point on a $100,000 mortgage, the cost is $1,000 up front. Paying for points only makes sense if you expect to have your mortgage for a number of years.
- Interest rate cap: (only applies to mortgages with an adjustable/ variable interest rate) the maximum interest rate for your mortgage.
| With any mortgage, you borrow a certain amount of money and make monthly payments to the lender. These payments can be just for the mortgage or they can include property taxes or insurance payments. All mortgages have common features. Before getting a mortgage you should understand the following terms: Types of mortgages Once you understand the basic mortgage terms, you should also understand the different kinds of loans that exist. Some of the most common types of loans are:
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