Common Mortgage Terms You Should Know
Applying for a mortgage is an exciting life milestone! This often means you feel secure in your life as it is, whether it be career-wise, relationships or both, and are ready to settle down in one area for at least a few years.
The actual process though can be daunting, especially with all the vocabulary associated with closing the deal. If you're thinking of applying for a mortgage or would like to learn more, keep the following list in mind.
Although it may not include every term out there, this dictionary will give you an idea of what you're getting into before you take the leap.
Common Mortgage Terms
Adjustable-rate mortgage or ARM: A home loan in which the interest rate changes periodically based on the standard financial index, although most have caps on the amount that the interest can actually rise.
Annual percentage rate: A standardized method of calculating the cost of a mortgage, stated as a yearly rate including interest, mortgage insurance, points and credit costs.
Appraisal: A written report estimating the value of your property.
Closing costs: Expenses incurred by sellers and buyers when transferring ownership including items such as an origination fee, attorney's fees, taxes, escrow payments and title insurance.
Collateral: Some form of property that is pledged as a security to debt if the borrower fails to repay the loan. If this occurs, the lender may take ownership and sell it in order to recover the money.
Credit report: A report of the borrowing and repayment history of an individual that will be used to determine eligibility for loans in the future.
Down payment: Amount of a property's purchase price that a buyer pays in cash that does not finance with a mortgage. A cash down payment can range in price from 5% to 20% of the sale price.
Escrow: A neutral account held by a third party that maintains all documentation and money during the real estate transfer until all conditions of the sale are met.
Fixed-rate mortgage: A type of home loan in which the interest rate will remain the same throughout the life of the loan, spanning anywhere between 10 and 50 years, but most often remain between 15 and 30 year increments.
Foreclosure: The process by which a homeowner defaults on a mortgage and is deprived of interest in the property. Normally, this involves a forced sale, with the proceeds going toward the mortgage debt.
Homeowners insurance: An insurance policy that includes hazard coverage covering damage or loss of property, as well as liabilities and thefts.
Interest-only mortgage: An adjustable rate mortgage that allows borrowers to pay only the interest for a specific amount of time.
Jumbo mortgage: A mortgage that exceeds the conforming limit, with rates tending to be one-eighth to one-quarter of a percentage point higher than comparable mortgages.
Point: A point equals 1% of a mortgage loan, factored into the loan's APR. These points may be used as "origination points" to cover expenses of the loan or as "discount points" to reduce the loan's interest rate.
Title insurance: A policy that guarantees an owner has the proper title to a property and can legally transfer the title to someone else.
If you have other mortgage questions or need assistance, contact a Bethpage expert today.
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