Use this glossary of mortgage terms to better understand the general mortgage process, as well as any specific mortgage terms you may not be familiar with. Our Mortgage Broker on James Island SC and writers focus on the things that matter most to consumers: the most recent rates, the best lenders, how to manage the homebuying process, how to refinance your mortgage, and more, so you can make confident decisions when making decisions as a buyer and homeowner. An adjustable rate mortgage is one where the interest rate on the loan changes at a predetermined time, with a frequency of up to six months. Usually, there is an initial “interim” period in which the interest rate is especially low, even lower than that of a fixed-rate mortgage. After that, your rate may rise or fall depending on market conditions.
Amortization describes the process of paying off a loan, such as a mortgage, in installments over a specified period of time. One part of each payment goes to principal (the amount borrowed), while the other part goes to interest. A typical mortgage loan can be amortized over a period of 15 or 30 years, and the amount allocated to interest and principal decreases and increases, respectively, with the time. When a loan is fully amortized or due, it means that it has been paid in full at the end of its repayment schedule.
The APR, or annual percentage rate, reflects the cost of borrowing a mortgage. The APR, a broader measure than the interest rate alone, includes the interest rate, discount points and other charges associated with the loan. The APR is higher than the interest rate and is a better indicator of the actual cost of the loan. FHA loans are mortgages insured by the Federal Housing Administration (FHA). This means that the FHA backs them; in the event of a default, it will reimburse the lender, reducing the lender's risk.
As a result, FHA loans often have more lenient credit requirements and lower down payments than conventional loans; they're especially popular with first-time homebuyers. A fixed-rate mortgage is a loan that has the same interest rate for the entire repayment period (term of the loan), unlike an adjustable rate mortgage, which has an interest rate that fluctuates depending market conditions. Borrowers can only change the interest rate on a fixed-rate mortgage by refinancing it. Borrowers can purchase discount points, also known as mortgage points, to lower the interest rate on their loan.
A point typically costs 1 percent of the loan amount and lowers the rate by 0.25 percent (though it may vary depending on the lender). The cost of the points is included in the loan estimate and the borrower pays them on the spot of the closure. In general, borrowers buy points to reduce interest over the life of the loan, so they may only be worth buying if the borrower stays in the home long enough to offset the initial cost. Amortization is the process of paying off debt in equal installments over time.
When you apply for a mortgage loan, you'll make regular monthly payments following an amortization schedule. Closing costs are the fees you pay to the lender to originate, underwrite and close your mortgage. These vary depending on each lender and each individual mortgage, but average closing costs range from about 2% to 5% of the purchase price of your home. A conventional loan is a type of mortgage that isn't guaranteed by a government agency (such as FHA, VA, and USDA loans).
In general, depositing a larger amount can help you receive a lower interest rate. And if you can deposit at least 20% in a conventional loan, you won't have to pay for private mortgage insurance. Seller concessions are closing costs that the seller can agree to pay as an incentive for you to make an offer. In general, a mortgage can last up to 30 years and as short as 10 years. Short-term mortgages are considered mortgages with ten-year or fifteen-year terms.
Long-term mortgages typically last 30 years. Third-party origination occurs when a lender uses another party to originate, process, underwrite, close, finance, or package all or part of the mortgages it plans to deliver to the secondary mortgage market. A mortgage broker is a person or company that brings together borrowers and lenders to originate a loan. Reverse mortgages are available to homeowners of a certain age (usually at least 62, but only 55 years old for some loans) who have paid off all or most of their mortgages.
When buying loans from major lenders, the secondary market provides money for additional mortgages. For example, if you decide to buy mortgage points, you can lower the interest rate on your mortgage. The minimum interest rate for an adjustable rate mortgage (ARM) is the minimum interest rate, as specified in the mortgage note. Principal and interest account for the majority of the mortgage payment, which can also include escrow payments for property taxes, home insurance, mortgage insurance, and any other monthly costs or fees that are due. Mortgage underwriting is the process by which a bank or mortgage lender evaluates the risk they would assume if they granted a loan to a specific borrower.
Buy and sell FHA-insured and VA-guaranteed residential mortgages, as well as conventional mortgages. First Home Mortgage Corporation is licensed in Connecticut, Delaware, District of Columbia, Florida, Georgia, and is a residential mortgage licensee (Lic. Private mortgage insurance (PMI) is provided by a private mortgage insurance company to protect lenders against losses in the event of a borrower default. Buy mortgage loans (that meet your requirements) from lenders and secure loans in the secondary mortgage market.
A lump sum mortgage is a mortgage with level monthly payments that amortize over a specified term, but also requires that a lump sum be paid at the end of a specific previous term. Buyers often enlist the help of mortgage brokers to find the loan that best fits their situation and the lowest rates available. Mortgage lenders examine your DTI when considering applying for a loan to make sure you have enough money to make your payments. An initial loan balance that exceeds the maximum amount established by the Federal National Mortgage Association and the Federal Mortgage Loan Corporation.
