Since it can be difficult to understand mortgage terms, I’ve created a list of the most common terms and their definitions. Hopefully, by using this as a reference, you can finally see mortgage terms made easy!
Here are common mortgage terms made easy:
An amortized loan is a loan with scheduled periodic payments that consist of both principal and interest. An amortized loan payment pays the relevant interest expense for the period before any principal is paid and reduced.
An appraised value is an evaluation of a property’s value based on a given point in time that is performed by a professional appraiser during the mortgage origination process. The appraiser is usually chosen by the lender, but the appraisal is paid for by the borrower.
Closed mortgages have a prepayment limit, which means you are only permitted to pay 15% of the original principal balance of the mortgage per calendar year.
Common closing costs include loan application fees, points, prepaid homeowners’ insurance, an appraisal fee, inspection fees, transfer taxes, escrow fees, attorney fees, recording fees, prepaid interest , prepaid private mortgage insurance, title insurance, and title search costs.
In general, an agreement between a buyer and a seller that an offer will be made if a certain condition is met. In real estate transactions, conditions can include a home inspection or a mortgage application.
A conventional mortgage is a loan that is not guaranteed or insured by any government agency. It is typically fixed in its terms and rate.
A credit report is a detailed report of an individual’s credit history. Credit bureaus collect information and create credit reports based on that information, and lenders use the reports along with other details to determine loan applicants’ credit worthiness.
A number assigned to a person that indicates to lenders their capacity to repay a loan.
Debt consolidation means taking out a new loan to pay off a number of liabilities and consumer debts, generally unsecured ones. In effect, multiple debts are combined into a single, larger piece of debt, usually with more favorable pay-off terms: a lower interest rate, lower monthly payment or both.
In mortgage agreements, down payment is the difference between the purchase price of a property and the mortgage loan amount.
Fixed Rate Mortgage
A fixed-rate mortgage is a fully amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or “float”.
Home equity is the value of ownership built up in a home or property that represents the current market value of the house less any remaining mortgage payments. This value is built up over time as the property owner pays off the mortgage and the market value of the property appreciates.
Interest Adjustment Date
Interest adjustment date is the date from which your lender first starts.
In finance, maturity or maturity date refers to the final payment date of a loan or other financial instrument, at which point the principal (and all remaining interest) is due to be paid.
A legal agreement by which a bank or other creditor lends money at interest in exchange for taking title of the debtor’s property, with the condition that the conveyance of title becomes void upon the payment of the debt.
A mortgage broker is an intermediary working with a borrower and a lender while qualifying the borrower for a mortgage. The broker gathers income, asset and employment documentation, a credit report and other information for assessing the borrower’s ability to secure financing.
Open mortgages allow you to prepay any amount of your mortgage at any time without a compensation charge.
A prepayment penalty is a clause in a mortgage contract stating that a penalty will be assessed if the mortgage is prepaid within a certain time period.
Getting a new mortgage to replace the original is called refinancing. Refinancing is done to allow a borrower to obtain a better interest term and rate.
A mortgage renewal is a new agreement to extend or renew mortgage terms with your mortgage holder.
The term subprime refers to the credit quality of particular borrowers, who have weakened credit histories and a greater risk of loan default than prime borrowers.
Variable Mortgage Rate
A type of home loan in which the interest rate is not fixed.