Unit 3: Getting a mortgage may be easier than you think!

Lesson 1: What you should know about mortgage loans

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 lender’s money. Lenders often change their rates daily. In addition, they have different rates for different types of
mortgage loans.

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 day.

Down payment requirement is the lender’s 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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