Mortgage Terminology – An overview of popular mortgage terms
The mortgage terminology section will help you in knowing the various terms used in the mortgage industry. It is very important to be aware of the terminologies as it’ll save you from any misunderstanding of jargons. So check out the various terminologies given below.
Adjustable-Rate Mortgage (ARM) – It is a type of mortgage loan in which the rate of interest changes periodically depending on changes in the external economy.
Amortization – It is a loan repayment method in which the amount borrowed is repaid in installments for a period of time.
Annual Percentage Rate (APR) – It is the total yearly cost of the mortgage. It includes the interest rate, points and various other charges payable on the loan.
Balloon mortgage – It is a mortgage loan which requires fixed and low monthly payments for a short term. But when the loan term is over, the balance amount has to be paid in full with a lump sum amount.
Buy-down – Buy-down is that which allows you to bring down the interest rate on your fixed rate mortgage loan for a temporary period, usually for one to three years.
Cash out refinance – It is the process of refinancing a mortgage at a higher amount than the current loan balance. The additional money can be used by the borrower for personal use.
Down payment – It refers to the initial amount paid in cash by a homebuyer from his pocket. It is the difference between the mortgage amount and the purchase price.
Equity – The difference between the value of the home and the balance of outstanding mortgage loan(s) on the home.
Fannie Mae – It is a government-sponsored enterprise (GSE) chartered by Congress and is the largest supplier of home mortgage funds in the U.S.
Fixed rate mortgage (FRM) – It is a type of mortgage loan, in which the rate of interest remains fixed for the entire loan period.
Foreclosure – This is a legal process wherein the borrower is deprived of the right to his property if he fails to pay the loan back.
Home equity line of credit (HELOC) – It is a mortgage loan that can be taken out to support financial needs using the home equity as a security for the loan.
Points – Points are paid on the mortgage loan to lower the rate of interest by a considerable amount. This can be done by paying a percentage of the loan to the lender at closing.
Refinance – It is the process of taking a new loan to pay off an existing loan by keeping the same property as security.
VA loan – These loans are insured by the U.S. Department of Veterans Affairs, and are offered to veterans and their spouses.