Basic mortgage terms that you should know
When you intend to take a home loan for the first time, you will come across some mortgage terms which you are not familiar with. Before talking to the lender, it is very important for you to educate yourself on the basic mortgage terminology. Have a look at some of the basic terms related to mortgage loans.
1.Adjustable rate mortgage: This is a kind of mortgage in which the interest rate is adjusted periodically based on an index. It is also known as renegotiable rate mortgage.
2.Adjustment date: The date on which the interest rate changes in an adjustable rate mortgage (ARM)
3.Adjustment period: The time period intervening between adjustment dates for an adjustable rate mortgage.
4.Amortization: This is the repayment procedure in which the amount that you borrow is repaid in monthly installments of principal and interest, over a given period of time.
5.Amortization term: It is the time required to amortize the mortgage which is generally expressed in terms of months. For example, 180 months is the amortization term of a 15 year fixed rate mortgage.
6.Annual Percentage Rate (APR): This is the yearly cost of a loan including the interest rate, insurance, origination fees, expressed as a percentage.
7.Balloon mortgage: This is a mortgage which does not fully amortize over the term of the loan, thereby leaving a balance due at maturity. This final payment is known as balloon payment.
8.Broker: A broker is an individual or a firm which acts as an intermediary between a buyer and a seller. Usually he gets a commission for this work. His work is to assist in arranging fund for a client who does not do the transactions himself.
9.Debt-to-income ratio: This is a ratio expressed as a percentage where a homeowner's monthly debt obligation is divided by the homeowner's gross monthly income.
10.Delinquency: This is failure on the borrower's part, to make payments on time. This can lead to forced foreclosure.
11.Down payment: This is a partial payment made at the time of the purchase of the home loan. The rest is to be paid later in the form of monthly mortgage payments.
12.Foreclosure: This is a legal procedure in which the lender seizes the mortgage property which is kept as collateral, because the borrower could not meet the terms of the mortgage. So, next time you go to a mortgage lender, go through this mortgage terminology that will help you to take better decisions when deciding on which home to purchase.
13. Loan Modification: Lenders modifying a current loan to accomodate a new payment and ease the burden for homeowners.