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Mortgage Terminology

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.

Amortization – 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.

Balance – 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.

Cash-In Refinance – Paying down the loan balance to reduce the 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.

Debt Consolidation – The process of using a new, more favorable loan to pay off several unsecured debts.

Equity – The difference between the value of the home and the balance of outstanding mortgage loans on the home.

Fannie Mae &  Freddie Mac – Two government agencies that purchase mortgages from lenders and resell them to investors.

Grace Period – The period of time when a loan payment may be made after its due date without incurring a late penalty.

Home 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.

Interest Accrual Period – The period in which the interest due to the mortgage lender is calculated.

Jumbo 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, the loan amount may vary)

Knowledge – 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.

Maturity – The period of time until the last payment is due on a loan. In most cases, this is the term of the loan.

Note – Legal statement showing the terms of debt and a promise to repay it.

Origination Fee – A fee that a lender charges for evaluating and processing the loan. This is usually expressed as a percentage.

Payment Period – The frequency with which the borrower is obligated to make payments. In most cases, the payment period is monthly.

Qualifying Ratio – The comparison of a borrower’s expenses, such as housing or debt to their income.

Refinancing – The act of paying off a loan with the funds from a new loan on the same property.

Start Rate – A pre-determined interest rate that will be applied to a loan until the date of the first interest rate change.

Term – The number of years until a loan is to be fully paid off.

Underwriting – Verifying data and evaluating a borrower’s loan application. The underwriter gives the final approval of the loan.

VA Loan – Home loans that are available to U.S. veterans and are guaranteed by the U.S. Department of Veterans Affairs.

Walkthrough – The final inspection of a home to inspect for damages or problems that may need to be fixed before closing.

eXtraordinary Operations Department – Make sure that the company you choose for your loan has a talented processing and underwriting team.

Year-End Statement – A report showing how much interest was paid during the year and the remaining mortgage balance owed.

Zoning Ordinances – Local laws that determine building codes and regulations on the use of a property.

As your Mortgage Advisors, we are 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 us today to set up a time when we can meet to discuss your home mortgage needs!

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