“Mortgage Speak” Translated
Talking about mortgages can sometimes feel like you were dropped onto a new planet with a funny language. It’s can be overwhelming and intimidating if you don’t understand the language.
Here is a brief guide to some of the more common terms that you will likely hear so that you can feel confident and be a part of the conversation:
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on a pre-selected index.
Loan payment divided into equal periodic payments calculated to pay off the debt at the end of a fixed period including accrued interest on the outstanding balance.
Annual Percentage Rate (APR)
The measurement of the full cost of a loan including interest and loan fees expressed as a yearly percentage rate. Because all lenders apply the same rules in calculating the annual percentage rate it provides consumers with a good basis for comparing the cost of different loans.
An estimate of the value of property made by a qualified professional called an “appraiser. based on an appraiser’s knowledge experience and analysis of the property.
Expenses over and above the price of the property that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee property taxes charges for title insurance and escrow costs appraisal fees etc. Closing costs will vary according to the area country and the lenders used.
The ratio expressed as a percentage which results when a borrower’s monthly payment obligation on long term debts is divided by his or her gross monthly income. See housing expenses-to-income ratio.
Money paid to make up the difference between the purchase price and the mortgage amount.
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
The difference between the fair market value and current indebtedness also referred to as the owner’s interest. The value an owner has in real estate over and above the obligation against the property.
An account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.
The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.
Homeowner’s Insurance also known as “Hazard Insurance”
A form of insurance in which the insurance company protects the insured from specified losses such as fire windstorm and the like.
Loan to Value Ratio (LTV)
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
A lender’s guarantee that the mortgage rate quoted will be good for a specific number of days from the day of application.
Money paid to insure the mortgage when the down payment is less than 20 percent.
The fee charged by a lender to prepare loan documents make credit checks inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.
Points (Loan Discount Points)
Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100000 mortgage would cost $2000).
The process of determining how much money you will be eligible to borrow before you apply for a loan.
Entire sequence of steps, from the time a loan application is received (or a loan offer is accepted) to the time loan is closed, the loan proceeds are disbursed, and the aggregate amount (principal plus interest) is placed on the lender’s books as an asset.
Money paid to the lender for recording a home sale with the local authorities thereby making it part of the public records.
An organization that collects principal and interest payments from borrowers and manages borrower escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
A document that gives evidence of an individual’s ownership of property.
The decision whether to make a loan to a potential home buyer based on credit employment assets and other factors and the matching of this risk to an appropriate rate and term or loan amount.
Verification of Employment (VOE)
A document signed by the borrower’s employer verifying his/her position and salary.
Have further questions regarding this topic? Give me a call, I’m happy to help!