US mortgage terminology
Okay, so let's pretend you're playing house and you want to buy a pretend house from your friend. But the pretend house costs more money than you have, so your mom and dad might help you out by giving you a pretend loan.
First, you have to agree on how much pretend money you're borrowing from your parents. This is called the "loan amount." Let's say it's pretend $100.
Next, you and your parents have to decide how long you want to take to pay back the pretend loan. This is called the "loan term." Let's say you decide to pay it back over pretend 10 weeks.
Now, your parents are going to charge you pretend interest on the pretend loan. This is like a pretend fee that you have to pay for borrowing the pretend money. The interest rate is a percentage of the loan amount. Let's say your parents charge you pretend 5% interest.
So, every week for ten weeks, you have to pretend pay back some of the pretend loan plus the pretend interest. This is called the "mortgage payment." Let's say your mortgage payment is pretend $11.
The pretend "principal" is the amount of pretend money you still owe on the pretend loan. So, after the first week, you've paid back pretend $11, but you still owe pretend $89.
"Amortization" is a big word that means the schedule of your pretend payments. This schedule shows how much pretend money you'll pay every week and how much of that pretend money goes toward paying off the pretend loan and how much goes toward paying the pretend interest.
The "down payment" is the pretend money you give to your friend when you buy the pretend house. Let's say you give them pretend $20 for the down payment.
"Closing costs" are the pretend fees you have to pay to buy the pretend house. This can include things like pretend taxes, pretend insurance, and pretend fees for the pretend bank that's giving you the pretend loan. Let's say the pretend closing costs are pretend $15.
Overall, buying a pretend house is a lot like taking out a real mortgage. You borrow money, pay it back over time with interest, and have to pay fees along the way. But in the end, you'll have your very own pretend house!
First, you have to agree on how much pretend money you're borrowing from your parents. This is called the "loan amount." Let's say it's pretend $100.
Next, you and your parents have to decide how long you want to take to pay back the pretend loan. This is called the "loan term." Let's say you decide to pay it back over pretend 10 weeks.
Now, your parents are going to charge you pretend interest on the pretend loan. This is like a pretend fee that you have to pay for borrowing the pretend money. The interest rate is a percentage of the loan amount. Let's say your parents charge you pretend 5% interest.
So, every week for ten weeks, you have to pretend pay back some of the pretend loan plus the pretend interest. This is called the "mortgage payment." Let's say your mortgage payment is pretend $11.
The pretend "principal" is the amount of pretend money you still owe on the pretend loan. So, after the first week, you've paid back pretend $11, but you still owe pretend $89.
"Amortization" is a big word that means the schedule of your pretend payments. This schedule shows how much pretend money you'll pay every week and how much of that pretend money goes toward paying off the pretend loan and how much goes toward paying the pretend interest.
The "down payment" is the pretend money you give to your friend when you buy the pretend house. Let's say you give them pretend $20 for the down payment.
"Closing costs" are the pretend fees you have to pay to buy the pretend house. This can include things like pretend taxes, pretend insurance, and pretend fees for the pretend bank that's giving you the pretend loan. Let's say the pretend closing costs are pretend $15.
Overall, buying a pretend house is a lot like taking out a real mortgage. You borrow money, pay it back over time with interest, and have to pay fees along the way. But in the end, you'll have your very own pretend house!