Do Consumers Understand Lending?

Jason Price brought up a good point as he was ignoring the Steelers game yesterday:

We get bombarded with home loan information - the problem is that most of it is so totally over the average person's head that they tend to get lost in the babble. Which is exactly what the advertisers want! It's the old "Baffle them with BS" - thing.

Before you can REALLY make a good decision about financing (or refinancing) your real estate you need to understand the BASICS. After that, if you want to go on to mumble about what the Government may or may not do and blah, blah.... go right ahead.

Here are the most basic basics - make sure you understand them and the whole process will be a lot easier for you and your family:

Note: This is the IOU that you sign where you promise to pay back the money you borrowed from the bank. The note outlines the terms of how you are to pay back the loan (term, interest rate, payment, and principal amount).

Mortgage: This the lien that a bank places against your home. Think of it as collateral for the bank.

Term: This is the length of time that your note is amortized over. The most common term is 30 years. Basically, this is how long it will take to payoff the note.

Interest Rate: This is the percentage rate that a bank charges for you to borrow the money.

Annual Percentage Rate (APR) : This is NOT the interest rate! This is the true cost of your note (closing costs, interest paid and principal amount repaid) expressed in terms of a percentage. The closer the APR to the interest rate, the less expensive the loan will be.



Marc J Blasi