It is suggested that you know these key mortgage terms before buying a home, refinancing your current loan, or taking out a second mortgage. Understanding these terms can help you find the right loan, and you could even save some money by refinancing with your knowledge of the industry.

Adjustable rate mortgage (ARM)

A home loan with an interest rate that changes periodically based on changes in a specific index. The adjustment period is how often the lender adjusts the interest rate on a variable rate home loan. For example, a 3-year ARM would have an adjustment period after the first 3 years.

Repayment term

The time required to pay off the mortgage loan. The repayment term is evaluated as a number of months. (that is, a 15-year fixed-rate mortgage, the repayment term is 180 months.

Annual percentage rate (APR)

The effective interest rate paid on a loan, expressed as an annual rate. The APR measures the true interest cost of borrowing by including any prepaid fees or interest involved in obtaining a loan. For example, if a borrower pays $ 2,000 in closing costs to obtain a $ 10,000 loan but only receives net income of $ 9,500. The Federal Truth in Lending Act requires lenders to disclose the APR.

Appraised value

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 evaluate the asset will be different. For homes, appraisers typically use a method that includes recent comparable home sales data. They can also use the replacement method, which is the cost of replacing the house at current prices.

Appreciation

An increase in the value of a property due to changes in market conditions or other causes.

Active

Anything of monetary value that is owned by a person. Assets include real estate and personal property. Liquid assets like bank accounts, stocks, retirement are important.

Cash refinancing

A refinance transaction in which the amount of money received from the new loan exceeds the total money needed to pay off the first existing mortgage, closing costs, points, and the amount required to satisfy outstanding subordinated mortgage bonds. Refinance loans offer the borrower additional money for multiple purposes.

Combined Value Loan (CLTV)

The unpaid principal balances on the 1st and 2nd mortgage on a property divided by the appraised value of the homes.

Construction loan

An interim loan to finance construction costs. The bank or lender makes payments to the builder at regular intervals as the work progresses.

Credit report

A report of a person’s credit history reported by a credit bureau and used by a lender to determine the credit worthiness of a loan applicant. (3 credit deposits are Trans Union, Experian and Equifax).

Debt to income ratio

Monthly debt and mortgage payments divided by gross monthly income.

Trust deed

The document used in some states in lieu of a mortgage; the title is transmitted to a trustee.

Depreciation

A decrease in the value of a home or a decrease in your home equity.

Deposit

The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

Capital credit line draw

Drafts are withdrawals that you make on a second line of mortgage credit. With a line of credit, you only pay interest on the amount of money you access, and only for the period in which you have borrowed the money.

Fair market value

The highest price that a buyer, willing but not obligated to buy, would pay, and the lowest price that a seller, willing but not obligated to sell, would accept.

Fannie mae

This institute is authorized by Congress and is a shareholder-owned company that is the largest provider of mortgage funds in the nation.

FHA mortgage

A government mortgage insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

First mortgage

A mortgage that is the primary bond against a property.

Fixed rate mortgage

A mortgage in which the interest rate does not change during the term of the loan. Fixed rate mortgages have a specific number of payments.

Mortgage’s trial

The legal process by which a borrower in default on a mortgage is deprived of his or her interest in the mortgaged property. Typically, this involves a forced sale of the property at a public auction and the proceeds of the sale are applied to the mortgage debt.

Good faith estimate

An estimate of the charges a borrower is likely to incur in connection with a deal.

Risk insurance

Insurance that protects against loss of real estate caused by fire, some natural causes, vandalism, etc., according to the terms of the policy.

Home equity line of credit

A line of credit secured by a second home trust deed. Equity lines of credit are revolving accounts that work like a credit card, which can be canceled or loaded during the term of the loan. The minimum payment due each month is interest only.

Home equity loan

a loan secured by a second home deed of trust, typically used for debt consolidation or home improvement.

Interest-only loan option

Loan payments have two components, principal and interest. An interest-only loan does not have a principal component for a specific period of time. These specialty loans minimize your monthly payments by eliminating the need to pay off your balance during the interest-only period, giving you greater control of cash flow and / or greater purchasing power.

Jumbo Home Loan

Loan amounts greater than $ 417,000 are considered non-conforming or jumbo mortgages and are generally subject to higher prices.
Lien A lien on property for money owed, whether voluntary or involuntary.

Mortgage insurance

Insurance issued by an independent mortgage insurance company that protects the mortgage lender against losses incurred through mortgage default. It is normally required for loans with an LTV greater than 80%.

Penalty for prepayment

A charge imposed by a mortgage lender on a borrower who wishes to pay off part or all of a mortgage loan ahead of schedule.

Refinance loans

Mortgage loans used to pay off a loan with the proceeds of a new loan using the same property as collateral.

Second mortgage

A home equity loan, mortgage, or lien on a property, which is held in second place.

Declared Income Loans

Some loan products only require applicants to “state” the source of their income without providing supporting documentation, such as tax returns.

Title insurance

Insurance against loss resulting from defects in title to a parcel of real property specifically described.

Law of truth in loans

A federal law that requires the disclosure of credit terms using a standard format. This is intended to facilitate comparisons between loan terms from different financial institutions.

Veterans Administration

A government agency that guarantees home loans with no down payment to American veterans.