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Terms to Know when dealing with Mortgages

By Ben Levy

Almost everybody has had a mortgage at some point in their lives and could tell you that the whole process can be very confusing at times. Knowing the basic terms that can be found in a mortgage can help ease the stress and uncertainty that can be associated with getting a mortgage.

* Collateral - This is something that a bank will take if you fail to make the payments on a loan. In the case of mortgages, the collateral is almost always the home that you are getting the mortgage for.

* Foreclosure - When you fail to make the payments on the mortgage, the bank will repossess your home.

* Term - The amount of time that it will take for the mortgage to be completely paid off. A common term is 30 years.

* Principle - The amount of money that the mortgage was initially issued at.

* Interest - Each payment period, the bank will charge you a certain percent on the principle as a fee for using their money.

* Amortize - When the principle of the mortgage decreases after each successive payment. A portion of each payment goes towards the interest expense while the remainder of the payment decreases the principle of the mortgage.

* Fixed Rate Mortgage - The interest rate charged on the principle will be locked in from the moment you sign the contract, regardless of whether the market interest rate increases or decreases.

* Variable Rate Mortgage - The interest rate will adjust at specified intervals of time to account for changes in the market interest rate.

* Refinancing - When you take out a new mortgage and use it to repay your old mortgage entirely. This is often done because the new mortgage has a lower interest rate than your current one. Even half of a percentage point can save you a lot of money. Though keep in mind that the later you are in the term of your mortgage, the less advantageous refinancing becomes.

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