It is very important for people that are considering the notion of buying a home for the very first time to consider some of the basics when it comes to mortgage rates. There are many ways for a bank to charge its customers interest on the home loans that they lend. This piece will be assuming that the home buyer is a first time buyer with very little experience.
One of the first things that a first time buyer should do is familiarize their selves with the term APR. The term APR gets tossed around a lot and most banks do not define what these three letters mean when they advertise mortgages on television or in print. The term APR stands for, "annual percentage rate", and the term refers to the fact that bank loans accumulate interest on an annual or "yearly" basis.
Newbie's need to realize that mortgages have two built in charges that create their monthly payment rate. The actual amount of money from each payment that is being applied to the amount of money being borrowed is often times referred to as the "principle" because this is the principle amount of the loan. Interest is figured into each payment because the bank has to earn money as they are lending it.
Not all of each monthly house payment is going to be applied directly to principle as interest has to be accommodated for. Some of the payment will go toward principle and some of it is allocated to interest for that particular month. There are many methods for a bank to determine how much of the payment goes to each section however the amortization schedule is among the most common.
An amortization schedule breaks down each monthly payment for the life of the loan and allows the bank and home owner to see how much of each payment goes toward principle and how much of it goes toward interest. During the beginning, more money will go toward interest. As the home owner decreases the amount of principle, less loan money is accumulating interest and therefore interest will be less.
One neat thing that most people notice is that when they get to their last few payments on the schedule, a very large portion of each payment is going toward principle. Very little money is going to interest simply because the principle has been paid down so low. The last house payment is mostly principle with very little (if any at all) interest applied to it.
The bank office is not the only place that a new home buyer can turn to when it comes to getting an amortization schedule. The websites that many banks run will allow people to enter their own hypothetical figures and receive an instant schedule that is generated. Some people do this to have a better idea of what they want before actually arranging to have a meeting at the bank office.
Once a new home buyer begins to understand the basics behind mortgage rates, and how the amortization of payments works, then they will typically be able to understand the banker providing the loan a lot better. Some first time home buyers are very young and have other things on their mind as they start their new life. Because the borrower's mind is preoccupied, some of the bank teller talk can seem almost like a foreign language to the borrower.