Everyone knows that you should never sign on the dotted line without reading the contract.  The same applies to loans.  Signing a loan without knowing the terms and what everything means can be not only detrimental to your finances but to your credit and future investments.  Before you sign on the dotted line, make sure that you know these terms and how they will apply to you.

1. Interest Rate - The interest rate is the percentage of your loan that is added on every month.  The percentage will vary according to the economy and will make a difference in your payments.  To see current rates go to bankrate.com.
2. Fixed Rate - A fixed rate will be an interest rate that stays at the same percentage throughout the entire period of your loan.
3. Variable Rate - A variable rate will change according to the economy.  A variable rate usually changes every year and adjusts according to a specific given range of percentages.
4. Principal - The principal is the amount you will be paying your mortgage loan down.
5. Escrow - This is similar to a savings account for your loan.  Whatever money is put into escrow will accumulate without paying directly into the loan.  The escrow money will usually be put towards your homeowner’s insurance and your homes taxes.
6. Title - A title will be what you receive stating that your home is officially yours, this states that the property belongs to you.
7. Closing Costs - Closing Costs are any fees paid by the buyers or sellers during the closing of the loan.  This can include an origination fee, discount points, attorney’s fees, survey and title insurance.  Closing costs are explained in greater detail at Mortgage-x.
8. Home Equity - A home equity loan is a fixed or variable rate loan that is based upon the value of your home.  The interest paid is usually tax deductable.  The money is often used for home improvement or the consolidation of many other higher interest debts that are not tax deductable. 
9. Appraisal - An appraisal is the estimated fair market value of your home at a specific time. 
10. Equity - The difference in the fair market value of your home and your outstanding loan balance.

Once your comfortable with the basic terms, you will be able to proceed to find the exact loan to fit your needs.  These basic definitions will help you in making the right decision for the type of loan you want.  To see more terms head to this glossary of mortgage definitions.

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