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Mortgage Glossary | Common Terms
Learn About Mortgage Loans
When you shop for a mortgage you probably are going to hear many unfamiliar mortgage terms. Because of all the options available, obtaining a mortgage loan can be a real adventure. And since so much is at stake, your knowledge of the mortgage definitions will help you get the best possible deal.
Take a few minutes to browse through these mortgage terms and you will feel more comfortable when you decide to apply for a mortgage. The more you know, the better equipped you will be to get the best deal for you.
Mortgage Definitions and Terms
Adjustable Rate Mortgage
Any type of mortgage that includes an adjustment in the interest rate during the term of the mortgage. Such interest rate adjustments
are typically made annually, or at three years or even at five years.
Annual Percentage Rate
Commonly called APR, this interest rate reflects the total amount of all finance charges including interest, points, origination fees and mortgage insurance. This APR allows consumers to compare mortgage costs among several mortgage lenders. Mortgage lenders must provide this information to all loan applicants. The higher the APR, the higher the cost of the mortgage to you.
Many mortgage lenders charge an upfront fee to cover their cost for the credit report and appraisal. This fee is usually not refundable, but will be credited at closing.
An evaluation of the market and reproduction value of a house by a qualified appraiser. Mortgage lenders require appraisals in most cases, but exceptions may be made with a refinance mortgage loan.
A form of second mortgage that is collateralized by the borrowers present home (which is usually for sale) that allows the proceeds to be used for closing on a new house before the present home is sold.
Regulate the design, construction, and materials used to meet standardized guidelines for building integrity.
Legal permission from the local government agency authorizing construction. Permits are applied for by the builder or owner and fees are paid for the permitting process.
This refers to the practice of paying larger loan fees up front to provide a lower interest rate during the term of a loan. Buy downs only make sense when the borrower is going to have the loan for a long time and can recoup the cost of the buy down. Even then, if rates drop and the borrower refinances, the buy down fee is lost.
The mortgage closing is a meeting with the buyer and
seller at the tittle agent or escrow agent office. The purpose of the real
estate closing is for the sellers to legally turn over the property to the
Closing costs represent all of the costs paid at the mortgage loan closing. Typically mortgage closing costs include loan fees, appraisal fees, credit report fees, title insurance, survey, documentary stamps, recording fees, and other mortgage lender costs assessed at closing. Prepaid tax and insurance escrows and prepaid interest are also included. Closing costs can be surprisingly expensive so be sure you understand all the costs involved as detailed in your closing disclosure.
You will receive an estimate of closing costs called a Closing Disclosure from the lender three days prior to closing. Be sure to read this document carefully and ask questions before closing.