Mortgage terms are very important to know, so we present this mortgage glossary to help ensure that you are speaking the same language as your broker or bank. Keep in mind that if you do not know the mortgage terms that she or he is saying you should ask and make sure you are fully informed. Reading this mortgage glossary ahead of time may help.
Here in this mortgage glossary are some well-known terms, and some that are lesser known or often confused.
This is the date on which home mortgage interest rates change on an adjustable rate mortgage (ARM). It is vital that you assess whether you could be ready at that point for the potential for a higher or at least unpredictable home mortgage refinance rates and payments.
This is a mortgage that can be transferred over to a buyer when your home is sold. If you have a favorable rate, an assumable mortgage may be very attractive to a buyer if you can pass it along. These mortgages are hard to get, but it’s worth it to ask your broker or bank if they offer assumable terms if you are getting a low rate and have a feeling you will not be your home for the full length of the mortgage term.
This is a mortgage that requires payments to be made every two weeks instead of once a month. This may be more expensive in the short run – not because of higher rates but merely because the payments are due more often – but could save you significant money in the long run. There are calculators on-line that will show you how much you can save by making bi-weekly home mortgage payments
cloud on title
When a title search shows adverse information, these “clouds” must be removed, and this usually requires a change in the deed or court action before you can close. Examples include neighbors having a right of way on your land, people having mining or other rights, or there being an unpaid bill that led to a lien.
An appraiser’s estimate of the condition of a building, which can be older or newer than the actual age depending on whether any substantial work has been done on the property. An old house may have a newer effective age if it has a new addition and a lot of work in general having been done. A newer effective age can help raise the price of an appraisal.
When something like an existing mortgage, certain significant easements, or other restrictions would affect the owner of a property. This is sort of like “cloud on title” but is broader and covers more circumstances.
Usually once every year, or when a home mortgage refinance is done, the lender will need to make sure they are collecting the right amount of money for items like homeowners insurance and property taxes.
A term that denotes the highest home mortgage interest rate a homeowner can be charged – usually pertains to adjustable rate mortgages (ARMs). This is a highly important number to know if you are getting an ARM since you want to know the ceiling as far as rate and payment.
HUD settlement statement
This document shows, in detail, all money that must be paid at closing, such as commissions, fees, points, and escrow. Study your HUD statement carefully and ask your broker any questions you may have. If you are at all uncomfortable with his or her answers, or still do not completely understand, bring it to a financial consultant. This document is very important in the home mortgage refinance process.
If you take out an ARM and are given a fixed payment, there may be times when the payment does not cover all of the interest. This defers to the balance of the loan, possibly creating a higher balance despite a payment – your mortgage payment only covered interest, and not even the amount of interest that was due.
Some links to other mortgage glossary resources to research mortgage terms:
This page from Bankrate goes over the most commonly used mortgage loan terms. It is a great resource if you want to narrow your mortgage glossary down to the terms you are most likely to need to know.
For a comprehensive list of mortgage terms, this home loan glossary is excellent. If you run into mortgage terms you do not know along the way, this may be the complete mortgage glossary you need.
This is the fee charged by the lender to cover processing expenses. These fees can vary between banks and other lenders so you need to compare them closely. It is often negotiable. The origination fee may affect when to refinance if things are close, though usually they merely affect who to get your loan from.
This term covers basically everything a homeowner pays each month when making a mortgage payment: principal, interest, taxes and insurance. Though your broker or bank has no control over the amount of taxes or insurance you pay, be sure to know this number and make sure you can afford to pay it each month when you are deciding when to refinance.
This important ratio compares your monthly expenses to your monthly income. This helps the lender determine how much they can lend you. If you have expenses you can easily pay off before you apply for the mortgage, this will help lower your qualifying ratio.
When you have a second mortgage, for example, that has a lower priority than your first. When you go to refinance your mortgage, the new bank will have to decide whether it is willing to fold in the second, or leave it with the prior lender.
While a title search should uncover any problems with the title on a property, this insurance ensures that if anything was missed – a lien for example – and a dispute still arises, the bank is covered.
Truth in Lending
The homeowner has the right to receive, in detail, all terms and conditions associated with a prospective mortgage when they are deciding when to refinance. This document may be the most important one to study in the home mortgage refinance process.
Mortgage Terms Summary
When it is time to refinance, there are certain mortgage terms you need to know. You want to speak the same language as the broker or bank that will be handling your home mortgage refinance so that you are fully aware of everything that is happening throughout the process.
All of this said, make sure you choose a broker that is willing to explain things to you, and you are sure that she or he is not inadvertently not letting you fully understand your loan or your obligations by using certain mortgage terms and then not taking the time to be sure you understand them. As much as a mortgage terms dictionary like this one can be important, you should have a broker who is willing to take the time and effort to be sure you understand all of the mortgage terms in your loan.
We hope that this brief mortgage glossary is helpful, and we also welcome you to use our comments section if you want more information about certain mortgage terms you find.