Mortgage Loan Language

 

Adjustable Rate Mortgage :

A loan in which the interest rate changes based on a standardized financial index, which offers lower interest rates at first with the possibility of being raised in the future.

Back-End Ratio :

A ratio determined by adding the costs of monthly mortgage payments and other monthly debts divided by your monthly income (before taxes).

Balloon Payment :

A loan in which the payments don't go toward paying the entirety of the principal by the end of the term. After the loan expires, the borrower must make a balloon payment for the remainder or refinance.

Closing Costs :

The amount a buyer is charged for transferring ownership or financing a piece of property. The costs are around 3-7% of the purchase price.

Combined Loan-to-Value Ratio:

The sum being borrowed for a mortgage loan divided by the fair market value of the property.

Fixed Rate Mortgage :

A loan in which the interest rate remains constant throughout. Generally, they last longer and have higher interest rates than adjustable rate mortgages, but don't have the added risk of a suddenly increased interest rate.

Low-Documentation Loan :

A mortgage loan aimed at the self-employed, entrepreneurs, and those who choose not to reveal information surrounding their income. It requires less income and/or assets compared to a traditional mortgage loan.

PITI :

An acronym for the four aspects of a mortgage loan payment. They are principal, interest, taxes, and insurance.

Point :

An instrument of measurement for loans. One point is equal to one percent of the mortgage. Certain lenders charge fees in which points are used.

Prepayment Penalty :

A fee charged for paying off a loan before the conclusion of the term. Generally, prepayment penalties aren't charged to most borrowers.

Principal :

The amount of money owed or borrowed for a mortgage loan, not including interest.

Private Mortgage Insurance :

A type of insurance aimed to protect the lender if the borrower ceases to make payments by paying foreclosure costs. It is typically required if the down payment on the home is below 20% of the actual sale price.

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