It is suggested that you get to know these key mortgage terms before you purchase a home refinance your current loan, or take out a second mortgage. Understanding these terms can help you find the right loan and you might even save some money refinancing with your industry knowledge.
Adjustable Rate Mortgage (ARM)
A mortgage loan with an interest rate that changes periodically based on the changes in a specified index. The adjustment period is the frequency that the lender adjusts the interest rate on a variable-rate mortgage loan. For example, a 3-year ARM would have an adjustment period after the first 3 years.
The amount of time required to amortize the mortgage loan. The amortization term is evaluated as a number of months. (ie. a 15-year fixed-rate mortgage, the amortization term is 180 months.
Annual Percentage Rate (APR)
The effective interest rate paid on a loan, expressed as an annual rate. APR measures the true interest cost of borrowing by including any fees or prepaid interest involved in obtaining a loan. For instance, if a borrower pays $2,000 in closing costs to obtain a $10,000 loan but only receiving net proceeds of $9,500. The federal Truth-in-Lending Act requires lenders to disclose the APR.
The Appraised value is the market value of an asset that is derived from the appraisal process. Depending on the asset, the method used to appraise the asset will differ. For homes, appraisers often use a method that includes recent sales data of comparable homes. They may also use the replacement method, which is the cost to replace the home at today"s prices.
An increase in the value of a property due to changes in market conditions or other causes.
Anything of monetary value that is owned by a person. Assets include real property, and personal property. Liquid assets like bank accounts, stocks, retirement are important.
Cash Out Refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. Refinance loans offer the borrower additional money for multiple purposes.
Combined Loan-to-Value (CLTV)
The unpaid principal balances of the 1st and 2nd mortgages on a property divided by the homes" appraised value.
An interim loan for financing construction costs. The bank or lender makes payments to the builder at periodic intervals as the work progresses.
A report of a person"s credit history reported by a credit bureau and used by a lender in determining a loan applicant"s creditworthiness. (3 Credit Repositories are Trans Union, Experian and Equifax.)
Debt to Income Ratio
Monthly debt and mortgage payments divided by gross monthly income.
Deed of Trust
The document used in some states instead of a mortgage; title is conveyed to a trustee.
A decline in the value of a home or a decrease in your home"s equity.
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
Equity Line of Credit Draw
Draws are withdrawals that you make on a 2nd mortgage line of credit. With a credit line, you only pay interest on the amount of money you access, and only for the period that you have borrowed the money.
Fair Market Value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.
This institute is chartered by Congress, and is a shareholder-owned company that is the nation"s largest supplier of home mortgage funds.
A government mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.
A mortgage that is the primary lien against a property.
Fixed Rate Mortgage
A mortgage in which the interest rate does not change during term of the loan. Fixed rate mortgages have a specified number of payments.
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Good Faith Estimate
An estimate of charges which a borrower is likely to incur in connection with a settlement.
Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.
Home Equity Line of Credit
A credit line that is secured by a second deed of trust on a house. Equity lines of credit are revolving accounts that work like a credit card, which can be paid down or charged up for the term of the loan. The minimum payment due each month is interest only.
Home Equity Loan
a loan secured by a second deed of trust on a house, typically used for debt consolidation or for home improvements.
Interest-Only Loan Option
Loan payments have two components, principal and interest. An interest-only loan has no principal component for a specified period of time. These special loans minimize your monthly payments by eliminating the need to pay down your balance during the interest-only period, giving you greater cash flow control and/or increased purchasing power.
Jumbo Mortgage Loan
Loan amounts above $417,000 are considered non-conforming or jumbo mortgages and are usually subject to higher pricing.
Lien An encumbrance against property for money due, either voluntary or involuntary.
Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. Usually required for loans with an LTV higher than of 80%.
A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.
Mortgage loans used for paying off one loan with the proceeds from a new loan using the same property as security.
A home equity loan, mortgage or lien against a property, held in 2nd position.
Stated Income Loans
Some loan products require only that applicants "state" the source of their income without providing supporting documentation such as tax returns.
Insurance against loss resulting from defects of title to a specifically described parcel of real property.
A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.
A government agency guaranteeing mortgage loans with no down payment to American veterans.
Source by Sandy Sarconi