What is a mortgage? Essentially, it is a loan to cover the cost of your home. Here are three terms that you need to know when obtain a mortgage.
1. Down Payment
A down payment is the money pay (put down) initially on the house. Mane lenders want a down payment of at least 20% of the asking price. However, there are a few types of mortgage that require little to no down payment. If you do go with a small than 20% down payment, a Private Mortgage Insurance (PMI) will be added to your mortgage amount. This will automatically be removed once you have 22% equity in your home. You can ask your lender to remove it once you have 20% equity in your home.
2. Principal
The principal is the original amount of money you are borrowing. The down payment is taken from the price of the home to get your principal amount.
3. Interest
Interest is the money you pay the lender for borrowing money from them. This will be included in the mortgage payment (amount towards principal + amount of interest + PMI). As the principal gets smaller, more money will go towards the principal than the interest.
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