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| Mortgage Terms And Loan Terms Explained |
The mortgage, loan and financial markets seem to talk a foreign language when it comes to some of the
terminology they use. This can be confusing for the average person when arranging a loan or mortgage.
So, with that in mind, here are some of the more commonly used mortgage terms explained (do keep in mind that
the meanings may vary from Country to Country - and always seek your own legal and financial advice with any real
estate transaction):
Acceleration Clause
A clause in a mortgage which allows the lender to demand payment of the outstanding loan balance. Accelerating a
loan can happen when a borrower defaults on the loan or transfers title to another individual without informing the
lender.
Adjustable Rate Mortgage (ARM)
A variable or adjustable rate mortgage is an ARM. It is a mortgage in which the Interest rate is adjustable, meaning
that the rate can go up or down according to prevailing financial market conditions. An ARM loan will have typically
a 3 or 5 year period during which the rate is lower than the going rate. This is used to entice would-be borrowers or
help borrowers have lower payments for the initial period.
Amortization
The schedule of loan payments that details the amount of payment to be applied to the principal and the amount to
be applied to interest. An Amortization schedule is usually calculated to show a breakdown of payments on a
monthly basis for the full term of the loan.
Annual Percentage Rate (APR)
The total interest rate of a mortgage. The Annual Percentage Rate includes the stated loan interest as well as any
upfront interest paid in securing the loan. The Annual Percentage Rate will invariably differ from the mortgage rate
quoted due to the inclusion of these items.
Assignment
This is when the ownership of a mortgage is transferred from one company or individual to another.
Assumable Mortgage
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must "qualify" in order to
assume the loan.
Cash Out Refinance
When a borrower refinances a mortgage at a higher amount than the current loan balance with the intention of
pulling out money for personal use.
Debt to Income Ratio
The ratio of a borrower's total debt as a percentage of their total gross income.
terminology they use. This can be confusing for the average person when arranging a loan or mortgage.
So, with that in mind, here are some of the more commonly used mortgage terms explained (do keep in mind that
the meanings may vary from Country to Country - and always seek your own legal and financial advice with any real
estate transaction):
Acceleration Clause
A clause in a mortgage which allows the lender to demand payment of the outstanding loan balance. Accelerating a
loan can happen when a borrower defaults on the loan or transfers title to another individual without informing the
lender.
Adjustable Rate Mortgage (ARM)
A variable or adjustable rate mortgage is an ARM. It is a mortgage in which the Interest rate is adjustable, meaning
that the rate can go up or down according to prevailing financial market conditions. An ARM loan will have typically
a 3 or 5 year period during which the rate is lower than the going rate. This is used to entice would-be borrowers or
help borrowers have lower payments for the initial period.
Amortization
The schedule of loan payments that details the amount of payment to be applied to the principal and the amount to
be applied to interest. An Amortization schedule is usually calculated to show a breakdown of payments on a
monthly basis for the full term of the loan.
Annual Percentage Rate (APR)
The total interest rate of a mortgage. The Annual Percentage Rate includes the stated loan interest as well as any
upfront interest paid in securing the loan. The Annual Percentage Rate will invariably differ from the mortgage rate
quoted due to the inclusion of these items.
Assignment
This is when the ownership of a mortgage is transferred from one company or individual to another.
Assumable Mortgage
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must "qualify" in order to
assume the loan.
Cash Out Refinance
When a borrower refinances a mortgage at a higher amount than the current loan balance with the intention of
pulling out money for personal use.
Debt to Income Ratio
The ratio of a borrower's total debt as a percentage of their total gross income.
Delinquent Mortgage
A mortgage where a
borrower who is behind on
payments. If the borrower
fails to bring the payments
up to date within a
specified period, the lender
(mortgagee) may begin
foreclosure proceedings.
Equity
The difference between the
value of a property and the
total of any outstanding
loans or mortgages against
it.
A mortgage where a
borrower who is behind on
payments. If the borrower
fails to bring the payments
up to date within a
specified period, the lender
(mortgagee) may begin
foreclosure proceedings.
Equity
The difference between the
value of a property and the
total of any outstanding
loans or mortgages against
it.
Fixed Rate Mortgage
A mortgage loan where the interest rate is established at its origination and continues unchanged through the life of
the loan.
Interest
That portion of a mortgage payment that is the "charge" for using the lender's funds.
Interest-Only Loan
Where each payment goes toward interest, the outstanding balance of the loan does not decline with each payment.
Interest Rate Caps
Where a limit is placed on the amount that can be charged to the monthly payment of an adjustable-rate mortgage
during an adjustment period.
Lien
A legal claim against a piece of property or asset which is used to secure a loan and which must be paid when the
property is sold. Liens can be filed by unpaid contractors or other debtors in a legal process so that they will be paid
when a property is sold. A claim can hold against an asset until all the obligations to the creditor are cleared (a
general lien), or just until the obligations against that particular assets are cleared (a particular lien).
Loan Origination Fee
A charge imposed by the lender, payable at closing, for processing the loan.
Lock-in
A agreement by a lender guaranteeing a specified interest rate for a specified period of time. Lock-ins have specific
expiration dates, such as 30, 60 or 90 days in the future. Lock-ins are also referred to as a rate lock. A lock-in can
be a good option if interest rates are rising, but not so good if interest rates are falling.
LTV (Loan to Value)
The ratio of the amount of the mortgage as a percentage of the value of the property.
Mortgagee
A bank or other financial institution that lends money to the borrower. The borrower is considered the mortgagor.
PMI (Private Mortgage Insurance)
Required on virtually all conventional loans with less than 20% downpayment. The payments for PMI are included in
a mortgage payment and protects the lender against loan defaulters. On FHA loans, you will pay a MIP (Mortgage
Insurance Premium) which accomplishes the same purpose.
Prequalification
The first stage of a mortgage application where the lender will run a basic credit report and determine your debt to
income ratio in order to see how much mortgage a lender qualifies for.
Wraparound Mortgage
A loan to a buyer for the remaining balance on a seller's first mortgage and an additional amount requested by the
seller. Payments on both loans are made to the lender who holds the wraparound loan.
23 Buyer Turn-Offs When Selling Your Home
A mortgage loan where the interest rate is established at its origination and continues unchanged through the life of
the loan.
Interest
That portion of a mortgage payment that is the "charge" for using the lender's funds.
Interest-Only Loan
Where each payment goes toward interest, the outstanding balance of the loan does not decline with each payment.
Interest Rate Caps
Where a limit is placed on the amount that can be charged to the monthly payment of an adjustable-rate mortgage
during an adjustment period.
Lien
A legal claim against a piece of property or asset which is used to secure a loan and which must be paid when the
property is sold. Liens can be filed by unpaid contractors or other debtors in a legal process so that they will be paid
when a property is sold. A claim can hold against an asset until all the obligations to the creditor are cleared (a
general lien), or just until the obligations against that particular assets are cleared (a particular lien).
Loan Origination Fee
A charge imposed by the lender, payable at closing, for processing the loan.
Lock-in
A agreement by a lender guaranteeing a specified interest rate for a specified period of time. Lock-ins have specific
expiration dates, such as 30, 60 or 90 days in the future. Lock-ins are also referred to as a rate lock. A lock-in can
be a good option if interest rates are rising, but not so good if interest rates are falling.
LTV (Loan to Value)
The ratio of the amount of the mortgage as a percentage of the value of the property.
Mortgagee
A bank or other financial institution that lends money to the borrower. The borrower is considered the mortgagor.
PMI (Private Mortgage Insurance)
Required on virtually all conventional loans with less than 20% downpayment. The payments for PMI are included in
a mortgage payment and protects the lender against loan defaulters. On FHA loans, you will pay a MIP (Mortgage
Insurance Premium) which accomplishes the same purpose.
Prequalification
The first stage of a mortgage application where the lender will run a basic credit report and determine your debt to
income ratio in order to see how much mortgage a lender qualifies for.
Wraparound Mortgage
A loan to a buyer for the remaining balance on a seller's first mortgage and an additional amount requested by the
seller. Payments on both loans are made to the lender who holds the wraparound loan.
23 Buyer Turn-Offs When Selling Your Home
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