When shopping for a mortgage, you may get overwhelmed by the process if you don’t know what to expect. One thing that can discourage you is when lenders and others that you talk to throw around terms that you don’t know. Here are some terms you will run into when getting a mortgage so you know what others are talking about.
Amortization Schedule
This term refers to the schedule of repayment for the mortgage loan. The table breaks down the interest, balance, tax and insurance payment as well as any other fees or charges that the mortgage borrower is responsible for.
Equity
When referring to a home, the equity is the amount you have invested in the property. In short, it is the difference between the home’s value and the balance you owe on the home. For example, if the home is worth $120,000 and you owe $100,000, you have $20,000 of equity built up in it.
Escrow
Escrow is basically a third-party which keeps any money or objects of value until the home purchase goes through. Escrow accounts are generally used for the borrower to deposit money for taxes and hazard insurance before the deal is final. After closing, the mortgage lender then uses that money to pay those fees when they come due.
Fannie Mae and Freddie Mac
These are the two government agencies that purchase mortgage loans from the lenders.
Fixed-Rate Mortgage
A fixed-rate mortgage is on in which the interest rate and monthly payments are the same throughout the term of the loan. The interest rates never change and, as a result, the monthly payments remain the same as well.
Adjustable-Rate Mortgage
With an adjustable-rate mortgage, your monthly payments will fluctuate depending on the current interest rates.
Grace Period
A grace period refers to the number of days following the payment due date which you can pay your bill without getting charged late fees. Grace periods are only for mortgage loans in which the interest gets calculated each month.
Mortgage Rates
This refers to the current interest rates that banks are charging. Currently, they are hovering around five percent. However, mortgage rates are increasing which means paying more overall during the term of the loan.
Homeowners Insurance
A homeowners insurance policy is vital for protecting your most expensive investment. In some cases, you will be required to have a homeowners insurance policy because the lender requires it to protect their investment as well.
Housing Bubble
This refers to a significant increase in home prices doe to the expectation that the prices will continue to go up.
These are just a few of the more common terms you will encounter when searching for a mortgage loan. Hopefully, knowing these terms will make the shopping around process a little bit easier and understandable for you.
Add your Comment
or use your BestCashCow account