Purchasing a home is a smart investment. However, if youre purchasing a home for the first time, there is some terminology you need to be aware of regarding your future home mortgage. Here are some common words and terminology youll encounter when youre looking for a home loan.
Adjustable Rate Mortgage (a.k.a. ARM Loan): An Adjustable Rate Mortgage is a home loan where the interest rate adjusts throughout the term of the loan. ARM Loans usually have an initial interest rate that is lower than that of a Fixed-Rate Mortgage. This low interest rate is locked for a set length of time. Once that time has expired, the interest rate can go up based on market factors. The lower initial interest rate helps those who cant afford a fixed-rate mortgage get financing for their home. However, the interest rate will most likely increase after the initial term of the low interest rate expires.
Annual Percentage Rate (APR): APR is the interest rate quoted by the lender plus additional home loan costs. Additional costs include origination fees, points, etc. APR is often higher than the stated interest rate. This is because the additional costs will alter the originally advertised...
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