Terms To Know
It is important when you buy a home or take out a mortgage, that you understand the terms. Mortgage terms can be confusing, but the more you know, the better you are prepared.
Don't worry! You do not have to know it all. We do. We will help you understand every step of the way.
An adjustable-rate mortgage is a type of mortgage where your monthly payment and interest rate change periodically during the loan term based on the index fluctuation. Typically, ARMS have a rate cap that limits interest rate changes.
A limit or cap on how much a variable interest rate can change both by increase or decrease in a single adjustment period.
An analysis of a borrower's income, liabilities, the type of loan including taxes and insurance and their ability to pay for the mortgage.
The annual cost of a loan to a borrower. APR is a percentage of charges and fees like mortgage insurance, closing costs, discount points, and loan origination fees. All combined charges are the total cost of the loan.
This type of loan typically has lower-than-usual monthly payments for a set period. Once that time is ended, a larger payment than usual is due. Often a balloon loan may give lower monthly payments, but it also means you have higher interest payments over the loan term.
A base rate is an interest rate that is used as a benchmark for pricing variable-rate loans. These loans include adjustable-rate mortgages, credit cards, and auto loans.
A loan that bridges the gap from the termination of one loan and the start of a new loan.
A broker is a third party who does not lend money but acts as the lending or contract negotiator. Fees are paid to a mortgage broker to assist in the negotiation and transaction.
An abstract title company or an attorney will provide a statement based on public record of who legally holds title to real estate.
This is the date you sign and execute your new loan documents.
Settlement or closing costs are all incurred costs when you obtain your loan. Costs include ownership transfer of any collateral property, attorney's fees, title search fees, discount points, appraisal fees, title insurance, and credit report charges.
This is your monthly mortgage payment described in your loan contract. Contractual payments may include principal and interest, homeowners insurance, mortgage insurance (if applicable), and property taxes associated with your home.
An adjustable-rate mortgage (ARM) can be converted to a fixed-rate loan under specified conditions.
Your total monthly debt across loans, credit cards, etc. divided by your gross monthly income before taxes and expressed as a percentage.
This document transfers legal ownership of real estate from a seller to a buyer at closing.
The difference between the appraised value of a home and the outstanding mortgage and lien balances.
This is an account where funds are deposited and held until a certain date or period is met. This account is used to pay homeowners insurance and property tax.
The selling price of the home is based on an appraisal.
A mortgage that is government-insured by the Federal Housing Administration (FHA) insured mortgage. FHA mortgage insurance protects the lender in the case a borrower defaults on the FHA loan. This insurance is not available through conventional financing.
Certain home equity lines of credit allow borrowers to set the payments and interest rates on a portion of the outstanding principal balance for a specific term.
A line of credit secured by the borrower's residence and is often used for debt consolidation, home improvements, and other expenses. Typically a HELOC term is 30 years with a 10-year draw period followed by a 20-year repayment period. Homeowners insurance This is a type of insurance that protects your home in the case of a fire, vandalism, theft, personal liability, or other catastrophes.
A loan that is split into equal payments across the life of the loan.
The rate at which interest accrues on the mortgage and is used to help calculate the monthly payments.
This is an agreement by a lender that extends a maximum credit amount over a specified time. A home is used as collateral in a home equity line of credit.
Mortgage insurance or private mortgage insurance (PMI) protects the lender if the borrower defaults on the loan. Most lenders will require mortgage insurance if the down payment is than 20%.
There are three basic mortgage programs:
FHA loans are available to all qualifying borrowers, but VA loans are only offered to qualifying veterans and surviving spouses and are guaranteed or insured by the federal government. Conventional loans are available to all qualifying borrowers.
This is the date that the loan proceeds are disbursed.
A loan fee imposed by a lender to cover processing mortgage loan expenses. This is usually a percentage of the loan stated in the form of points.
The amount required or the payment to pay the outstanding loan balance in full.
Daily accrued interest on a loan is calculated by multiplying the outstanding loan balance by the annual rate of interest, then dividing that result by 365.
A conditional agreement with specified terms from the lender to lend a specific amount of money to a homebuyer.
This is when you provide financial and other personal information as a borrower for the lender to estimate how much you may borrow to purchase a home. While pre-qualification is helpful, it is not a commitment to lending.
The interest rate that banks charge their best customers when lending them money. The U.S. Prime Rate is published by The Wall Street Journal and is based on a survey of the prime rates of the ten largest banks in the United States.
The amount of money borrowed on a loan is the principal. Interest is charged to the borrower in exchange for lending the money. Principal and interest make the majority of mortgage payments, but also include escrow payments.
To refinance means you would pay off the existing loan with money borrowed from a new loan. Typically refinance loans are secured by the same property as collateral. Often refinancing can lower payments, interest rates and save on financing costs.
The repayment period is the time you have to repay your outstanding balance in full. Payment periods are usually 10, 15, 20, or 30 years.
Secured loans are when the borrower gives a lien on the property to the lender. These loans can be automobiles, boats, real estate, or other personal property.
Written documents of evidence to prove ownership of the property.
Title insurance protects either the owner or the lender against issues that would affect legal ownership of the property.
This is the person who approves or denies a home loan. Their decision is based on the lender's approval criteria.
This is the approval process a lender takes to decide to approve a loan to the borrower. This decision is based on employment, credit, assets, repayment risk, term, and loan amount.
A mortgage loan guaranteed by the Department of Veterans Affairs (VA) for qualified veterans and spouses of veterans of U.S. military forces.
