Mortgage Questions
Does the term 'amortization' leave you perplexed? Are you unsure how pre-approval differs from pre-qualification? If so, you're not alone. Here are some mortgage basics to help you become more familiar with the process.
1. Pre-qualification vs Pre-approval
Pre-qualification is often the first step when searching for a home. You supply 'basic' financial information, such as your income, assets and debts, and the lender then provides a preliminary estimate of the amount for which you may qualify.
Pre-approval involves an in-depth look at your finances and usually requires an application fee, but this process brings you closer to determining your potential interest rate and monthly payment. Your credit worthiness is also considered. Being pre-approved also puts you in a better position in a competitive market because it shows you have your finances in order.
2. Amortization
Amortization is the process of paying off a home loan's principal and interest over time within a consistent, planned repayment schedule, usually 25 years or more. In the beginning, a large portion of each payment goes towards interest, but as the loan matures, larger amounts go toward paying down the principal.
3. Types of Loans
Fixed and Variable rate mortgages operate as their respective names imply. The 'fixed' has a rate that stays the same for the term of the loan. The 'variable' rate may start low, but it can fluctuate up or down after a predetermined period, or depending on market conditions.
We have oodles of mortgage terms and definitions in our Glossary, so please take a peek. We're always here for you. Reach out to get started.
