Understanding Mortgage Lingo
Whether you are about to tackle the mortgage process for the first time or the fifth time, you need to get the lingo behind the magic.
Loan officers will inevitably use these terms and phrases during the course of your home purchase. Real Estate Agents will likely use them too. but they’ll probably miss the context entirely and leave you in a more progressed state of bewilderment.
Never fear, though. We have everything you need - in the proper context - outlined below. Read it, print it, share it, love it.
Adjustable Rate Mortgages (ARM):
Loans with an initial fixed-rate period (usually 5, 7 or 10 years). After the fixed-rate period, your interest rate may change once per year – either up or down depending on market conditions. ARMs are almost always lower in rate than fixed loans and can offer huge savings to first-time home buyers, especially those who don’t plan on staying in their first home for more than 10 years.
The gradual reduction of debt over the term of the loan. Amortization occurs through repayment of principal.
Annual Percentage Rate (APR):
The yearly cost of a mortgage including interest and other expenses or charges such as private mortgage insurance and points expressed as a percentage.
A written estimate of a property’s current market value.
The conclusion of your real estate transaction when legal documents are signed and funds are disbursed.
Expenses over and above the cost of the property, which can include items such as title insurance, appraisal, processing, underwriting and surveying fees.
A report from an independent agency detailing credit history and previous and current debt to help determine creditworthiness.
A mathematical formula that predicts an applicant’s creditworthiness based on credit card history, outstanding debt, type of credit, bankruptcies, late payments, collection judgments, too little credit history and too many credit lines.
The legal document that transfers property from one owner to another.
This is the amount of your home’s purchase price you pay upfront.
Deposit made by a buyer toward the down payment to show good faith when the purchase agreement is signed.
The monetary difference between your mortgage balance and the actual market value of your home.
Fixed- or adjustable-rate loan insured by the Federal Housing Administration. FHA loans are designed to make housing more affordable, particularly for first-time home buyers.
Mortgage with an interest rate and a payment that don’t change over the term of the loan. Should the current market interest rate fall below your fixed rate, contact your mortgage expert right away to discuss the benefits of refinancing.
Good Faith Estimate:
Written estimate of the closing costs the borrower will likely have to pay to obtain the loan. Will be phased out as of August 1st, 2015 in favor of the (allegedly) easier to understand “LOAN DISCLOSURE” document.
Mortgage that gives you the option of paying just the interest, or the interest and as much principal as you want in any given month during an initial period of time.
The percentage rate that a lender charges to borrow money.
Lock or Lock-In:
A lender’s guarantee of an interest rate for a set period of time. The lock-in protects you against rate increases during that time.
Points (or Discount Points):
Points are upfront fees paid to the lender at closing. Typically, one point equals one percent of your total loan amount. Points and interest rates are inherently connected. The more points you pay, the lower your interest rate.
We break the most important part of the entire purchase process down in detail right over here.
The balance (not counting interest) owed on a loan. 30 year fixed-rate mortgages are amortized so that the longer you have the loan, the more principal you reduce with each payment.
Private Mortgage Insurance (PMI):
Insurance to protect the lender in case the borrower defaults on the loan. With conventional loans, PMI is typically not required with a down payment of 20% or more of the home’s purchase price..
Examination of municipal records to ensure that the seller is the legal owner of a property and that there are no liens or other claims against the property.
In mortgage lending, the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for the loan.