Shopping and buying a property is an exciting experience, particularly if it is your first one. Shopping and applying for a home loan is exactly the opposite and it does not really matter how many times you do it.
Regardless of your experience level, dealing with the complex and chaotic mortgage application process can be stressful. When evaluating what loans you should apply for and the terms of the same, it helps to keep in mind the basics. Here is an introductory guide to the same.
The principal of a home loan is the big number that can scare the pants off you. Put simply, this is the amount of money you are borrowing to buy that dream home. With number in the hundreds of thousands of dollars, you can get big eyes. Do not let it over you. Everyone borrows large numbers. Yes, you will be able to repay it!
The term of a mortgage is simply the number of years you have to repay it. Traditionally, the period was always 30 years, but you can get a wide variety of time periods now from as few as three years to as long as 40. In general, it is better to pick as short a term as possible since you will pay less total interest and gain equity in your home. Counterbalancing this is the increased monthly payment you can make. If you are considering a 30 year loan, make sure to look at a 15 year term as well. The monthly payment amounts are not that different.
When a financial institution lends you money, they are not doing it to be nice. Instead, they are looking to make a profit off your need for money. This profit is expressed as the interest rate they charge you. Interest rates vary widely depending on loan amounts and types of loans. The key is to shop around and find the best rates for your situation. Do not get lazy! Even a quarter percent savings on your interest rate can save you tens of thousands of dollars in total interest on the loan.