iFreedom Direct

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It is important for you to be knowledgeable about the home mortgage process. Mortgage financing terminology can be confusing because much of the language is unique to the industry. This was written to provide a quick reference to most mortgage terms. Adjustable Rate Mortgage (ARM): A mortgage in which the interest rate is adjusted periodically according to the movement in a preselected index. Technically, ARMs do not include mortgages where the payments change for other reasons, such as buydowns, although the term is often used in this broader sense. Amortize: Reduce a debt by regular payments of both principal and interest. "Fully amortizing" means payments scheduled to pay off the debt completely during a set term. Annual Percentage Rate (APR): The total yearly cost of a mortgage stated as a percentage of the loan amount; it includes the base interest rate, private mortgage insurance, and loan origination fee (points). Appraisal: A professional opinion of the estimated current market value of a property. Appreciation: An increase in the value of a property due to changes in market conditions or other causes. Assessed Value: The valuation placed upon property by a public tax assessor for purposes of taxation. Asset: Anything you own that has monetary value including but not limited to cars, household items, cash, stocks, bonds, and real estate. Balloon Mortgage: Typically, a fixed-rate mortgage with a 20- to 30-year amortization and a lump sum (balloon) principal payment 3 to 7 years after closing. These loans have interest rates and monthly payments lower than fixed-rate loans. Buydown: Money advanced by an individual (builder, seller, etc.) to reduce monthly payments for a home mortgage during either the entire term or for an initial shorter term. Cap: See Interest Rate Cap . Cash-out: A loan transaction in which the borrower receives funds at the time of closing. Closing: After all negotiations on the price of the property have been accepted and the buyer has obtained approval for financing, a meeting is set with the buyer, seller, and lender. At this time, the buyer receives the mortgage loan amount needed to purchase the property and pledges the property as collateral or security for repayment of the debt. The mortgage documents are signed, and the title to the property passes from the seller to the buyer. Closing Costs: Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called "Settlement Costs." Co-Borrower: An additional borrower on a loan. Co-borrower obligations on a loan are the same as all other borrowers. Collateral: Property and/or other assets pledged as security to the lender for repayment of a debt. Conventional Loan: A term describing a mortgage loan made by a lender where the debt is not insured by a government agency such as the FHA or VA. Convertible ARM: An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions. Debt-to-Income Ratio: A formula used to determine if a mortgage loan is within monthly income range.

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