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Many of our customers find the
mortgage banking terminology extremely confusing leading to
frustration and dissatisfaction. To avoid this problem, MorneyCorp has created a
list of important lending terms. It helps understand the mortgage terminology, before making
a solid decision regarding what could
be the most important financial investment of your life.
The Mortgage
Terminology
Adjustable Rate Mortgage
(ARM)
A mortgage in which the interest rate is
adjusted periodically based on a pre-selected index. This
product generally comes with a lower initial interest rate
than 30 year fixed products.
Amortization
Means loan payment by equal periodic
payments calculated to pay off the debt at the end of a fixed
period, including accrued interest on the outstanding
balance. Most loans are amortized over 30, 20 or 15 years.
Annual Percentage Rate (APR)
An interest rate reflecting the cost of
a mortgage as a yearly rate. This rate is likely to be higher
than the stated note rate or advertised rate on the mortgage,
because it takes into account points and other credit costs.
Appraisal
An estimate of the value of property,
made by a state certified professional called an 'appraiser'.
Balloon (Payment) Mortgage
Usually a short-term fixed-rate loan
that involves small payments for a certain period of time and
one large payment for the remaining amount of the principal
at a time specified in the contract.
Broker
An individual in the business of
assisting in arranging funding or negotiating contracts for a
client but who does not loan the money himself. Brokers
usually charge a fee or receive a commission for their
services.
Caps
Limits on the amount the interest rate
on an adjustable rate mortgage may change per year and/or the
life of the loan.
Closing
The meeting between the buyer, seller
and lender or their agents where the property and funds
legally change hands. Also called settlement meeting.
Closing Costs
The costs associated with procuring and
funding a mortgage loan. These may include one or all of the
following: an origination fee, discount points, appraisal
fee, title search and insurance, survey, taxes, deed
recording fee, credit report charge and other miscellaneous
costs. Closing costs usually are about 3 percent to 5 percent
of the mortgage amount.
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