Great Mortgage Terms to Know
You may have found the house of your dreams. Now you need an incredible mortgage. Like everyone else, you probably really want to get a mortgage that works for you. You need to go in prepared for the whole process. That means knowing the terms and definitions that are associated with mortgages. The following are some of the mortgage terms you need to know.
Mortgage Definitions
ARM � Adjustable Rate Mortgage. This is an interest rate that changes based on a standard financial index. There may be an interest rate cap, but there may not be.
Appraisal � You need to find out how much the property is worth. An appraisal will estimate the value of the property.
Balloon mortgage � This mortgage will offer you low monthly payments for a specific period. When that period is up you must pay off the remaining balance of the loan in a lump sum.
Closing costs � This will happen when you transfer ownership of property. This is where you will pay fees and costs. Lenders should help you by giving you a good faith estimate of these costs.
Collateral � This will help you secured your finances if you fall into debt. This helps the lender recover money.
Escrow � This is when a neutral third party holds all the money and documents until all the conditions of the sale are met.
Fixed rate mortgage � This is an interest rate that will stay the same throughout the entire life of the loan, which is generally 15 to 30 years.
Foreclosure � If you default on the mortgage then you will face a forced sale of the property at a public auction.
Good faith estimate � A written estimate of the closing costs. This must be submitted to you within three days of your submitting your application.
Prepayment penalty � You may want to pay off your mortgage quicker then agreed upon. You may face some fees if you try to do this, because the lenders like the interest you pay on the loan.
Private mortgage insurance � This protects the lender against default. If your down payment is less than 20% then you may be required to get PMI. You will then pay for the insurance in monthly installments.
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