Equity is the value YOU own in property such as a house. It’s the difference between what’s OWED and what the property is WORTH in the current market.

The example this video shows – you have a house worth $300,000 today and you owe the bank $200,000.  Your equity would be $100,000.

If the house is valued at $500,000 in five years, and you still owe $150,000 your equity will be $350,000.

Equity grows if the property value goes up or if the amount owed goes down.  The key thing to remember, simple as it sounds, is that you “own” increases in value. The bank’s loan doesn’t go up if the home’s value goes up.

Equity in a home can be used as collateral for loans but a house is not a piggy bank. Home equity can become a key financial asset over time; treat it wisely.

The Prime Lending Rate – sometimes just called “Prime”  - is the interest rate that banks charge each other for overnight loans. Some consumer rates – like ARMs – are set in relation to Prime.

In the US, Prime is affected by the Federal Reserve lending rate to banks; historically, Prime is about 3 percent above the Fed rate.

The video shows  an example.

• The Federal Reserve loans to Bank A at 1%
• Bank A loans to Bank B at 4%
• Both banks – A & B – will recalculate variable-rate loans like ARMs on that 4% Prime figure.

ARM rates are frequently defined as “% above Prime” – that gap is usually called the “margin” or “spread.” Just remember those 3 layers in Prime: Federal Reserve Bank A Bank B And finally, YOUR rate.

Discount points allow you to lower your interest rate. While this video simplifies things to help you remember, “points” are essentially prepaid interest with each point equaling 1% of the total loan amount.

Generally, for each point paid on a 30-year mortgage the interest rate is reduced by 1/8 (or.125) of a percentage point.

When shopping for loans, ask lenders for an interest rate with 0 points and then see how much the rate decreases with each point paid.

Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment.

Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.

There are mortgage options now available that only require a down payment of 5% or less of the purchase price. You’ll see some pictures in this video to help you remember later – the larger the down payment, the less you have to borrow and the more equity you’ll have.

Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan.

When considering the size of your down payment consider that you’ll also need money for closing costs moving expenses, and – possibly – repairs and decorating.

The original phrase “mort gage” translates as “death pledge”! But as this video explains, a mortgage is a loan obtained to purchase real estate.
The “mortgage” itself is a lien – a legal claim on the home or property that secures the promise to pay the debt.

All mortgages have two features in common: principal and interest.

The principal is the amount you are borrowing which is “secured” by the lender’s claim on the property.

The interest, usually stated as the percentage rate is the additional amount paid for borrowing. Mortgage interest is ‘compounded’ – interest on interest, over time.

While this video simplifies things to help you remember, the loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing.

Each loan has a specific LTV limit. For example: With a 75% LTV loan on a home priced at $100,000 you could borrow up to $75,000 (75% of $100,000) and would have to pay $25000 as a down payment.

The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to pay out of their own funds.

So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policies.

This video tells you about the most common types: Fixed Rate, ARM, Balloon and 2-Step.

First, Fixed Rate Mortgages: Payments remain the same for the life of the loan generally 15 years or 30 years. Interest rates remain the same, so payments are predictable.

A second common type is an Adjustable Rate Mortgage, or ARM. ARM Payments increase or decrease on a regular schedule with changes in interest rates increases are typically subject to limits.

Third, Balloon Mortgage: These offers very low rates for an Initial period of time usually 5, 7, or 10 years when time has elapsed, the balance is due or refinanced though not automatically.

Finally, a Two-Step Mortgage- Interest rates adjusts only once and remains the same for the life of the loan.

Many other types are available, including government-insured mortgages and VA loans for veterans. Talk to lenders and real estate professionals to assess your situation.