What are the important points every homeowner should know about how mortgages work?
The mortgage loan refers to the loan to purchase a home for individuals. The mortgage loan would have a long period to repay both principal and interest. It is a type of installment loan.
Answer and Explanation:
There are some important points that a homeowner should know about the mortgage:
- Down payment: A high down payment would reduce the borrowing, which will reduce the interest expenses for the entire life of mortgage loan.
- Interest rate: The introductory APR is not the actual interest rate the homeowner pays. The effective annual interest rate is the real cost of the mortgage, which is higher than the APR and adjusted by the effect of compounding. Besides, the interest rate could be either fixed or variable over the mortgage life, which depends on the deal between the owner and the bank.
- Monthly payment: Monthly payment consists of the repaying principal and interest. The interest will be calculated based on the remaining balance of the mortgage loan.
- Additional payments: Other than the monthly payment, any additional payments will decrease the remaining balance of the mortgage loan, which helps the homeowner to reduce the actual time of paying off his debt.
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from Finance 102: Personal FinanceChapter 7 / Lesson 4