Any property that you buy to make a profit - either from renting or selling it
Investing in real estate can be extremely profitable venture –it is considered a long-term investment and the way to make money is to have equity, which is the money that you keep after the mortgage is paid off.
The three main ways to build equity are:
(1) your down payment when you purchase
(2) paying off the loan’s principal, which may take several years since your first years’ payments go primarily towards the interest
(3) the increase in the home’s value when the property appreciates.
Mortgage definitions and Real Estate Terms, Consolidating loans, refinancing mortgages and reverse mortgage process available to anyone. This consumer information site contains several tools and guides to aid in purchasing or refinancing a home or commercial property.
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Tuesday, May 16, 2006
Interest rate cap
The limit on how much the interest rate on an adjustable rate mortgage (ARM) can go up or down
Most ARMs have two types of interest rate caps:
(1) lifetime caps, which are required by law, that limit the increase and decrease of a rate over the full course of a loan. A 6% lifetime cap, for example, means the rate cannot go beyond 6 percentage points over or under the initial rate
(2) periodic caps, which limit the rate change from one adjustment period to the next, even if the market interest rates significantly rise or fall during this time. A lifetime cap is also referred to as aceiling or floor.
See: Cap
Most ARMs have two types of interest rate caps:
(1) lifetime caps, which are required by law, that limit the increase and decrease of a rate over the full course of a loan. A 6% lifetime cap, for example, means the rate cannot go beyond 6 percentage points over or under the initial rate
(2) periodic caps, which limit the rate change from one adjustment period to the next, even if the market interest rates significantly rise or fall during this time. A lifetime cap is also referred to as aceiling or floor.
See: Cap
Installment
Regular payments given to a lender to repay a mortgage
You usually pay off a mortgage in monthly or biweekly installments. If you have an escrow or impound account, your installment can be broken down into four parts, often referred to as PITI: loan principal, loan interest, property taxes and hazard insurance.
So, every month, lenders collect one-twelfth of your annual property taxes and hazard insurance to place into the account. So, when these bills become due, the lender can readily pay them off.
You usually pay off a mortgage in monthly or biweekly installments. If you have an escrow or impound account, your installment can be broken down into four parts, often referred to as PITI: loan principal, loan interest, property taxes and hazard insurance.
So, every month, lenders collect one-twelfth of your annual property taxes and hazard insurance to place into the account. So, when these bills become due, the lender can readily pay them off.
Initial interest rate
The starting interest rate of an adjustable rate mortgage (ARM)
The initial interest rate on an ARM, sometimes called a teaser rate, is fixed for a certain period then adjusts to reflect overall market rates. The lender starts you off with a very low initial rate, planning that interest rates will rise in the future and adjust to market rates.
Fixed rate loans, on the other hand always have the same interest rate for the life a loan, and the rate is usually higher than an ARM’s initial interest rate.
The initial interest rate on an ARM, sometimes called a teaser rate, is fixed for a certain period then adjusts to reflect overall market rates. The lender starts you off with a very low initial rate, planning that interest rates will rise in the future and adjust to market rates.
Fixed rate loans, on the other hand always have the same interest rate for the life a loan, and the rate is usually higher than an ARM’s initial interest rate.
Inflation
A decrease in the value of money
Inflation is a measure of the increase in the price of goods. Inflation generally affects your buying power - If you buy 10 ice cream cones with $10 one day, and inflation rockets up 10% the next day, you’ll only be able to buy 9 ice cream cones with your $10.
Inflation usually causes interest rates to rise. This is when it pays to have a fixed rate loan, rather than an adjustable rate loan since the interest rate doesn’t increase to match the market rates.
Inflation can also affect property values: if your home is worth$100,000 and inflation goes up 10%, your home is now worth $110,000.
An appraiser, though, usually adjusts their calculations to account for inflation when figuring out the market value of a property. Also, there are many factors that work together to influence property values that may offset inflation, such as supply and demand and a neighborhood’s condition.
Inflation levels in the U.S. are stable and fluctuate between 3% and 6%.
Inflation is a measure of the increase in the price of goods. Inflation generally affects your buying power - If you buy 10 ice cream cones with $10 one day, and inflation rockets up 10% the next day, you’ll only be able to buy 9 ice cream cones with your $10.
Inflation usually causes interest rates to rise. This is when it pays to have a fixed rate loan, rather than an adjustable rate loan since the interest rate doesn’t increase to match the market rates.
Inflation can also affect property values: if your home is worth$100,000 and inflation goes up 10%, your home is now worth $110,000.
An appraiser, though, usually adjusts their calculations to account for inflation when figuring out the market value of a property. Also, there are many factors that work together to influence property values that may offset inflation, such as supply and demand and a neighborhood’s condition.
Inflation levels in the U.S. are stable and fluctuate between 3% and 6%.
Income property
Any property, including land, which earns you money
Renting out a home that is not your primary residence is one way to use property to make money. An income property, like an apartment building with more than four living units, is normally appraised, mortgaged and taxed differently than a primary, owner-occupied residence.
Distance also plays a factor in creating a loan package for an income property.
Renting out a home that is not your primary residence is one way to use property to make money. An income property, like an apartment building with more than four living units, is normally appraised, mortgaged and taxed differently than a primary, owner-occupied residence.
Distance also plays a factor in creating a loan package for an income property.
Impound account -- Escrow Account
An account used to pay your hazard insurance, mortgage insurance and property taxes
An impound account is set up by the lender for you to prepay certain recurring costs at closing, such as your first six months of property taxes, your first two months of hazard insurance, and your first two months of mortgage insurance, if required.
From then on, you pay these bills from this account. Some lenders let you waive the impound account, but may tack on additional points to your closing costs if you choose to not have one.
An impound account is set up by the lender for you to prepay certain recurring costs at closing, such as your first six months of property taxes, your first two months of hazard insurance, and your first two months of mortgage insurance, if required.
From then on, you pay these bills from this account. Some lenders let you waive the impound account, but may tack on additional points to your closing costs if you choose to not have one.
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