For first timers, buying a home is like learning a new language. The search for the right Poughkeepsie NY Real Estate is always turning up more new and confusing terms. Often times it helps to have a realtor on your side to explain things to you, but in many cases realtors can just compound the problem by speaking in jargon, and the same is true for loan officers at financial institutions. In order to help you get the mortgage that's right for you, we've compiled this article to help you understand one of the most important facets: interest rates.

What is interest?

Interest, in its simplest terms, is the fee you pay to a lender in exchange for the service they are providing you with, i.e. lending you money. When you pay off a mortgage you are not just paying back the amount of the lump sum over a gradual period. If you want a bank to help you buy that dressage barn in London, Ontario you must pay for the privilege. The interest rate on your mortgage will be expressed as a percentage of the money you have borrowed. Different mortgages will calculate interest at different rates.

When do I pay interest?

The period of time interest is calculated over varies. Your neighbour who bought those homes for sale in Lorne Park may have his interest calculated yearly and you may have it done quarterly. Regardless of when it is calculated, some of each monthly payment you make on your mortgage will be put toward paying off interest rather than reducing the original lump sum. How much goes to interest varies depending on the type of mortgage you choose.

How is interest applied to my mortgage?

There are two basic types of interest, simple and compound. In simple interest, the amount of interest you must pay is calculated as a percentage of the original lump sum you received from the bank. In compound interest, each time the interest is calculated that sum is added to the original lump sum, increasing it and therefore your next interest payment. High net worth investments with low risks will get better deals from banks.

What is a good interest rate?

Interest rates go up and down all the time. The current best rate in the country is known as prime, so if you're looking to finance a purchase of Toronto real estate for sale you should try to get close to or lower than prime if you can. If you are buying a mortgage when prime is low, you want to get a fixed rate mortgage. If you think it may go down, you may want to get a variable rate mortgage, where your interest mirrors prime.