Fallout from the housing bust is still rocking the U.S. economy, but a recent survey conducted by Zillow.com, a mortgage and real estate database, suggests that more than half of the country (57 percent) still doesn’t understand how adjustable-rate mortgages work.

This is problematic for anyone hoping to eventually buy a home and avoid foreclosure.

Mortgage Basics: Knowledge Is Power

Here’s a look at some basic mortgage information that any potential homebuyer should have a handle on.

  • Little costs matter: Because of the size of most mortgage loans, small differences in the terms of a loan can make big differences in how much a person pays over the loan’s lifetime. For example, interest rates and lender fees can add up to serious cash and are often negotiable.
  • Paying smart can save you cash: When you repay a loan over the course of 30 years, you’ll end up paying a lot of interest – in the case of most mortgage loans, thousands of dollars of interest. But one trick homebuyers can use to save themselves some money (and possibly even shave a few years off their loan) is to make half a mortgage payment twice a month.
  • Doing research is important: Most people wouldn’t enter a test situation without reviewing the material and preparing to do well, but many attempt to get a mortgage loan without properly preparing their finances. Before you visit a lender, check your credit report (and consider buying a copy of your credit score) to get an idea of how a lender will perceive you as a credit risk. If necessary, take some time to clean up your credit history – waiting a year or two to take on a mortgage loan could end up saving you thousands of dollars if, after that period, you qualify for a lower interest rate.
  • Understanding foreclosure matters: If you are unable to make mortgage payments, your home will be foreclosed on by your lender. Foreclosure can be devastating and all too often, it catches homeowners off guard. Before you sign mortgage papers, make sure you understand what causes foreclosure, how it can be prevented, how various types of mortgages affect a borrower’s likelihood of going into foreclosure and how bankruptcy and foreclosure are related.

The Zillow.com study unveiled troubling numbers about our country’s overall financial literacy as it applies to mortgages (which isn’t altogether new information; consumer advocates have been calling for financial literacy education for a while now).

Perhaps the most important lesson we can take from this is that we are the ones responsible for our financial stability and that means we must take steps to ensure we’re acting in our own best interests.

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