Mortgage Terminology: A Brief Glossary (Part 1)

Beginning the home-buying process is a little intimidating. There's so much to know, so many variables to consider, and to make matters worse, there's a whole universe of terminology and jargon that can leave you feeling confused and out of the loop. So, to help fight back against those kinds of experiences, we've put together a quick glossary of mortgage terms. Now, like any jargon, these things are subject to change, or may be referred to in other ways depending on the area you live in, varying standards, and so on. Ideally, though, this mortgage glossary will help you feel more prepared as you begin the search for a home loan, and allow you to ask all the questions you need! • Adjustable Rate Mortgage (ARM) - A mortgage with an interest rate that changes periodically, based on predetermined index. • Adjustment Interval - The time between interest rate/monthly payment changes with an adjustable rate mortgage, typically one, three, or five years.

• Amortization - Planned, incremental payments calculated to pay off debt and interest at the end of a fixed period of time.

• Annual Percentage Rate (APR) - The full cost of your loan, including interest and fees, represented as a yearly percentage rate. This can be fixed or adjustable, and describes the actual costs of your loan.

• Appraisal - An estimate of the total value of a property, as determined by a professional's assessment and analysis.

• Borrower - The person who applies for, receives, and is responsible for repaying a mortgage.

• Broker - A person in the business of assisting/arranging a borrower secure funds from a lender, negotiate contracts, etc., but does not loan the money. Brokers typically charge a fee or receive commission for services. • Closing - The meeting between buyer, seller, and lender (or their agents) where property and funds officially and legally change hands. Closing will likely include costs and fees related to services, taxes, appraisal, title, and so on.

• Conversion Clause - A provision of an adjustable rate mortgage that allows the loan to be converted to fixed-rate, typically during the first adjustment period (and may have extra costs).

• Credit Report - A document of a potential borrower's credit history, and the current standing of their credit status.

• Debt-To-Income Ratio - The ratio (typically expressed as a percentage) of a borrower's total monthly payments on long term debts, divided by gross monthly income.

• Default - Failure to meet the obligations of a mortgage loan (like making timely payments).

• Deferred Interest - When a monthly payment is less than what is needed to cover the interest, and the interest is added to the total loan balance.

• Delinquency - Failure to make payments on time.

• Depreciation - Decreasing property value due to age, damage, natural deterioration, or other factors.

• Down Payment - An initial lump payment, the difference between the purchase price and the loan amount. • Due-On-Sale Clause - A mortgage contract provision that allows a lender demand full payment of the loan's balance if the mortgage holder sells the property.

• Equal Credit Opportunity Act (ECOA) - A federal law protecting borrowers from discrimination, requiring lenders to make credit equally available to applicants, regardless of race, sex, religion, color, national origin, marital status, disability, or public assistance status.

• Equity - The amount of home owned by the borrower, also represented by the difference between the total cost of the home and the remaining balance of the loan. As the borrower makes payments, their share of ownership increases. • Escrow - An account set up by a lender to collect funds for the purpose of paying property taxes, home insurance, etc.

• Fixed Rate Mortgage - A mortgage where the interest rate is set for the entire lifespan of the loan. Terms can range from 10 to 40 years, but the interest rate remains the same for the duration of the loan.

• Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) - A corporation created by Congress that purchases conventional mortgages in the secondary mortgage market, pools them, and sells them as mortgage-backed security to the open market. • Federal Housing Administration (FHA) - A government-run agency that provides insurance on home loans approved by the agency.

• Federal National Mortgage Association (FNMA or Fannie Mae) - A corporation, sponsored by the government, that buys and sells mortgages, allowing lenders to reinvest assets and increase availability of low cost housing. • FICO Score - A number that represents your credit, one of the most widely accepted credit score systems.

• Foreclosure - When a lender or seller forces the sale or repossession of a property because the borrower has not met the terms of the mortgage.

Stay tuned for Part II, where we'll cover even more of these key terms!