Mortgage Terms Explained

mortgage terms
Share this:

Whether it’s your first time buying a home, or your third, it’s important that you understand the mortgage terminology so you can feel confident about your home loan. Here are the top 8 mortgage terms explained.

Mortgage Terms Explained

Fixed Rate Mortgage

A fixed rate mortgage is a mortgage where the interest rate and the term of the loan I negotiated and set for the lift of the loan. The terms for a fixed rate mortgage can range from 10-40 years depending on the type of loan.

Closing Costs

Closing costs are the costs that the buyer must pay upon closing on the home loan. These costs consist of attorney fees, recording feed, and other fees associated with the mortgage closing. Man times in buyer’s markets, the closing cost can be negotiated between the buyer and hot seller. This is one of the most common mortgage terms.

Loan to Value Ratio (LTV)

The loan to value ratio is done by dividing the amount of the mortgage by the value of the home. Lenders will typically require the LTV ratio to be at least 80% to qualify for a conventional loan or a refinance.

Private Mortgage Insurance (PMI)

When the LTV is higher than 80%, borrowers need to pay PMI on an FHA loan. This insurance is a guarantee to the lender that until the borrower reaches 80% LTV, they are covered from default. At 70% the PMI is required to be taken off.

Escrow

At the closing of a mortgage, the borrowers are generally required to set aside a percentage of the yearly taxes to be held by the lender. Additionally, the lender will collect additional money to be used to pay taxes on the loan. This escrow account is maintained by the lender who is responsible for sending the tax bills. If property taxes skyrocket, you will need to pay a higher monthly rate to keep your escrow account in good standing.

Equity

Simply, equity is the difference between the value of the home and the mortgage loan. Over time, as the value of the home increases and the amount of the loan decreases, the equity in the home generally increases. Especially in booming markets where home values are skyrocketing, the equity of home are increasing at a fast rate.

Amortization

The amortization schedule outlines how the loan is intended to be repaid. If you sign a 30 year mortgage, the amortization schedule will include the amount borrowed, interest rate paid and term. The actual schedule will give you an spreadsheet of all you monthly costs broken down over 30 years.

Appraisal

The appraisal is an inspection conducted by a professional appraiser who will give you an estimated value based on the physical inspection and comparable houses that have been sold recently. This is the protect the buyer, ensuring they are paying a fair amount for the value of the home.

You may also like: A Breakdown of Conventional vs. FHA Loans in King County.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply