Mortgage Terms - Superloans

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that can change periodically, often tied to an index. ARMs may offer lower initial interest rates but carry the risk of rate fluctuations.

Amortization

The process by which mortgage payments are structured to pay off the principal and interest over the life of the loan. Over time, a larger portion of the payment goes toward reducing the principal.

Annual Income

A factor in a mortgage loan application that generally refers to your total earned, pre-tax income over a year. Annual income may include income from full-time or part-time work, self-employment, tips, commissions, overtime, bonuses, or other sources. A lender will use information about income sources to determine the borrower’s ability to repay the loan.

Annual Percentage Rate (APR)

A broader measure of the cost of borrowing money than the interest rate, the APR reflects the interest rate, any points, mortgage broker fees, and other charges the borrower will pay to receive the loan.

Appraisal

An assessment of the collateral property conducted by a licensed appraiser to determine its market value.

Appraisal Fee

Home appraisals provide an independent assessment of the value of the property and a fee is paid to the licensed appraiser providing the appraisal. In most cases, the selection of the appraiser and any associated costs is up to the lender.

Closing Costs

Fees and expenses associated with finalizing the mortgage and real estate transaction, including charges for appraisals, inspections, title insurance, and legal services.

Closing Disclosure (CD)

A document provided to the homebuyer before loan closing that details the final terms and total costs of the mortgage transaction.

Credit Score

A numerical representation of a borrower's creditworthiness, which lenders use to assess the risk of lending to that individual.

Debt Ratio

An individual’s debt-to-income ratio is their monthly debt payments divided by gross monthly income. This number is one manner in which lenders measure a borrower’s ability to manage the monthly payments to repay the money they plan to borrow.

Down Payment

The initial payment made by the homebuyer toward the purchase price of the home. It is typically a percentage of the home's value.

Equity

The amount the property is currently worth minus the amount of any existing mortgage on the property.

Escrow Account

A special account held by the lender to pay property taxes, homeowner's insurance, and, in some cases, private mortgage insurance (PMI) on behalf of the homebuyer.

Fixed-Rate Mortgage

A mortgage with an interest rate that remains constant throughout the loan term, providing predictable monthly payments.

Home Equity Line of Credit (HELOC)

A line of credit that allows a homeowner to borrow against their home equity. Equity is the amount your property is currently worth, minus the amount of any mortgage on your property. Unlike a home equity loan, HELOCs usually have adjustable interest rates. For most HELOCs, the homeowner will receive special checks or a credit card to borrow money for a specified time from when opening an account. This time period is known as the “draw period.” During the “draw period,” the homeowner can borrow money, and must make minimum payments. When the “draw period” ends, the homeowner is no longer able to borrow money from the line of credit. After the “draw period” ends, the homeowner may be required to pay off the balance all at once or may be allowed to repay over a certain period of time. If the homeowner cannot repay the HELOC, it could result in foreclosure.

Home Equity Loan (HEL)

This loan allows the homeowner to borrow money using the equity in their home as collateral. Equity is the amount the property is currently worth, minus the amount of any existing mortgage on the property. The homeowner will receive the money from a home equity loan as a lump sum. A home equity loan usually has a fixed interest rate. If the homeowner cannot repay the home equity loan, it could result in foreclosure.

Home Inspection

Often part of the homebuying process, the buyer may exercise their right to hire a home inspector to examine a property and identify its strengths and weaknesses. This is typically helpful in evaluating a home’s structural and mechanical systems, including heating, ventilation, air conditioning, and electrical.

Interest Rate

The cost of borrowing money, expressed as a percentage of the principal. Interest rates can be fixed (remaining constant throughout the loan term) or adjustable (changing at specified intervals).

Loan Term

The length of time over which the homebuyer agrees to repay the mortgage, such as 15, 20, or 30 years.

Monthly Payment

The amount the homebuyer is required to pay the lender each month, typically including both principal and interest. It may also include property taxes and homeowner's insurance, held in an escrow account and used by the lender to pay the entities to which it is owed.

Mortgage

A legal agreement in which a homebuyer borrows money from a lender to purchase a home or refinance an existing mortgage, with the home itself serving as collateral for the loan.

Mortgage Insurance

This insurance protects the lender if the borrower falls behind on payments. Mortgage insurance is typically required if the down payment is less than 20 percent of the property value. Mortgage insurance is also typically required on FHA and USDA loans. However, if the borrower has a conventional loan and the down payment is less than 20 percent, they will most likely have to pay for private mortgage insurance (PMI).

Prepayment Penalty

A fee charged by some lenders if the borrower pays off the mortgage early or makes significant extra payments.

Principal

The initial loan amount borrowed, which the homebuyer is required to repay, typically in monthly installments.

Private Mortgage Insurance (PMI

Insurance required by the lender if the down payment is less than 20% of the home's purchase price. PMI protects the lender in case the borrower defaults on the loan.

Refinancing

The process of obtaining a new mortgage to replace an existing one, often to secure better terms, such as a lower interest rate.

Title Insurance

A policy that protects the homeowner and the lender against any disputes or claims regarding the property's ownership and title.

Mortgage Terms.