There are many words that we use to describe everything from how a loan matures to various documents and programs that may be unfamiliar to you. I will explain some of the terms that we use most often in mortgage lending to help you gain a better understanding of some of the terminology you may hear when acquiring a mortgage.
A mortization – The repayment of principal from scheduled mortgage payments exceeding the interest due. By subtracting the interest from the scheduled payment, you will obtain the amortization.
B alance – The amount of the original loan that remains to be paid. By subtracting the sum of all prior payments from the loan amount, you will obtain the balance.
C ash-In Refinance – Paying down the loan balance to reduce loan-to-value ratio in a refinance transaction. This is often done to help the borrower qualify for a lower interest rate or reduced mortgage premium.
D ebt Consolidation – The process of using a new, more favorable loan to pay off several unsecured debts.
E quite – The difference between the value of the home and the balance of outstanding mortgage loans on the home.
F annie Mae & F reddie Mac – Two government agencies that purchase mortgages from lenders and resell them to investors.
G race Period – The period of time when a loan payment may be made after its due date without incurring a late penalty.
H ome Equity Line of Credit (HELOC) – A loan against your home where the lender agrees to give a buyer a line of credit. The collateral is the borrower’s equity in his or her house. Generally, a HELOC is a second lien / mortgage behind the borrower’s first mortgage.
I nterest Accrual Period – The period in which the interest due to the mortgage lender is calculated.
J umbo Loan – A mortgage greater than Fannie Mae and Freddie Mac’s conforming loan limit, which is generally $424,000. (depending on what area of the country you’re in, loan amount may vary)
K nowledge – A good mortgage planner will know all of their mortgage guidelines. It is important to hire someone who knows and understands the mortgage industry.
L oan-to-Value Ratio – The mortgage loan amount divided by either the selling price or appraised value of the home, whichever is less.
M aturity – The period of time until the last payment is due on a loan. In most cases, this is the term of the loan.
N
ote – Legal statement showing the terms of debt and a promise to repay it.
O
rigination Fee – A fee that a lender charges for evaluating and processing the loan. This is usually expressed as a percentage.
P
ayment Period – The frequency with which the borrower is obligated to make payments. In
most cases, the payment period is monthly.
Q ualifying Ratio – The comparison of a borrower’s expenses, such as housing or debt to their income.
R efinancing – The act of paying off a loan with the funds from a new loan on the same property.
S tart Rate – A pre-determined interest rate that will be applied to a loan until the date of the first interest rate change.
T erm – The number of years until a loan is to be fully paid off.
U nderwriting – Verifying data and evaluating a borrower’s loan application. The underwriter gives the final approval of the loan.
V A Loan – Home loans that are available to U.S. veterans and are guaranteed by the U.S. Department of Veterans Affairs.
W alkthrough – The final inspection of a home to inspect for damages or problems that may need to be fixed before closing.
e X traordinary Operations Department – Make sure that the company you choose for your loan has a talented processing and underwriting team.
Y ear-End Statement – A report showing how much interest was paid during the year and the remaining mortgage balance owed.
Z oning Ordinances – Local laws that determine building codes and regulations on the use of a property.
As your Mortgage Planner, I am happy to answer questions that you may have and provide you with more insight on loan programs that may be of interest to you. Call me today to set up a time when we can meet to discuss your home mortgage needs!
