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35 Mortgage Terms to Know

35 Mortgage Terms to Know

Mortgages can be complicated, but it’s important to understand the key terms before signing on the dotted line. Be sure to consult with a financial advisor to ensure that you are making the best decision for your individual situation. When you’re in the process of shopping for a mortgage, it’s important to understand all of the key terms and concepts involved. Here are 35 mortgage terms you should know before beginning the home-buying process:

 

1. Amortization: This is the process of gradually paying off a loan through periodic installments.

2. Annual Percentage Rate (APR): This is the annualized interest rate charged on a loan, expressed as a percentage.

3. Balloon Payment: A balloon payment is a lump sum payment that is due at the end of a loan’s term.

4. Bi-Weekly Mortgage: A bi-weekly mortgage is a type of mortgage where payments are made every two weeks instead of monthly.

5. Bridge Loan: A bridge loan is a short-term loan that is used to finance the purchase of a new home before the sale of the borrower’s current home is complete.

6. Buydown Mortgage: A buydown mortgage is a mortgage where the interest rate is reduced by an upfront payment.

7. Cap: A cap is a limit on how much an adjustable rate can increase over the life of a loan.

8. Closing Costs: Closing costs are fees associated with obtaining a mortgage and include items such as appraisal fees, title insurance, and origination points.

9. Construction Loan: A construction loan is a type of loan that is used to finance the construction of a new home.

10. Conventional Mortgage: A conventional mortgage is a type of mortgage that is not backed by the government.

11. Cosigner: A cosigner is someone who signs a loan with the borrower and is legally responsible for repaying the debt if the borrower defaults.

12. Credit Score: A credit score is a numerical representation of an individual’s creditworthiness.

13. Debt-to-Income Ratio (DTI): The debt-to-income ratio is a measure of an individual’s monthly debt payments relative to their monthly income.

14. Discount Points: Discount points are upfront fees paid to lower the interest rate on a mortgage.

15. Down Payment: A down payment is the amount of money that is paid upfront towards the purchase of a home.

16. Due-on-Sale Clause: A due-on-sale clause is a provision in a mortgage contract that requires the borrower to repay the loan in full if the property is sold.

17. Equity: Equity is the portion of a property’s value that is owned by the borrower.

18. Fannie Mae: Fannie Mae is a government-sponsored enterprise that provides financial products and services to the housing market.

19. Federal Housing Administration (FHA): The Federal Housing Administration is a government agency that provides mortgage insurance on loans made by FHA-approved lenders.

20. Freddie Mac: Freddie Mac is a government-sponsored enterprise that provides financial products and services to the housing market.

21. Fixed-Rate Mortgage: A fixed-rate mortgage is a type of mortgage where the interest rate remains fixed for the life of the loan.

22. Gift Letter: A gift letter is a document that states that a monetary gift is being given to help with the purchase of a home. The letter should include the name and relationship of the donor, as well as the amount of money being gifted.

23. Home Equity Line of Credit (HELOC): A home equity line of credit is a type of loan that uses the equity in your home as collateral.

24. Home Equity Loan: A home equity loan is a type of loan that uses the equity in your home as collateral.

25. Interest Rate: The interest rate is the percentage charged for the use of money, typically expressed as an annual percentage rate.

26. Jumbo Loan: A jumbo loan is a type of mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.

27. Leverage: Leverage is the use of debt to finance the purchase of an asset.

28. Loan-to-Value Ratio (LTV): The loan-to-value ratio is a measure of the size of a loan relative to the value of the property being purchased.

29. Mortgage: A mortgage is a loan that is used to finance the purchase of a home.

30. Mortgage Insurance: Mortgage insurance is insurance that protects the lender in the event of borrower default.

31. Mortgage Insurance Premium (MIP): A mortgage insurance premium is an insurance policy that is required for borrowers who have less than 20% equity in their home.

32. Origination Fee: An origination fee is a fee charged by the lender for processing a loan application.

33. Principal: The principal is the amount of money borrowed, not including interest or other fees.

34. Private Mortgage Insurance (PMI): Private mortgage insurance is insurance that protects the lender in the event of borrower default.

35. Refinance: Refinancing is the process of taking out a new loan to replace an existing one.

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