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Zhi Finance » Top 10 terms of the loan

Top 10 terms of the loan

Everyone knows that you shouldn’t sign on the dotted line without reading the contract. This statement applies to loans as well. Signing a loan without knowing the terms and all of its contents can adversely affect your finances, credit and future investments. Before you sign on the dotted line, make sure you know the terms and how they will apply to you.

  • 1. Interest rate. The interest rate is the percentage by which your loan will increase each month. This percentage will vary depending on the economy and will have an impact on your payments.
  • 2. Fixed Interest Rate. A fixed rate is an interest rate that remains at the same percentage for the entire term of your loan. 
  • 3. Variable Rate. Variable rates will change based on the economy and charts that illustrate what the rate should be. Variable rates usually change from year to year and are adjusted for a specific range of given percentages.
  • 4. Principal. The principal is what you will pay on your actual home. No matter what you pay on the principal, you will eventually see your investment.
  • 5. Escrow. This is similar to a savings account that you take out a loan on. Whatever you put in escrow will accumulate without having to be paid directly into the loan. At the end of the term, you can use it to complete payments on the loan or invest in another loan.
  • 6. Title. Title will be something you get after your home officially belongs to you, stating that the property belongs to you.
  • 7. Deed. A deed is most often used as title in commercial areas. It does not give ownership, but rather indicates that the property is being rented to someone who is using it as a business.
  • 8. Home Equity. This is a loan or line of credit that you can obtain for your home. It will fund up to 8% of your other loans and get repaid later. This will help if you want to consolidate loans or make more investments in the property.
  • 9. Appraisal. After an inspection of the home, an appraisal will be performed. This will be an estimate of the value of the home.
  • 10. Equity. This will be the actual amount of property you own. Most likely, it is the portion of your principal that is being repaid.

Once you know these basic terms, you will be able to expand your knowledge and find the exact loan that fits your needs. These basic definitions will help you make the right decision about the type of loan you want.