Did you know that the average homeowner only encounters mortgage jargon once every 10 years? That’s according to the 2019 Profile of Home Buyers and Sellers from the National Association of Realtors. But don’t worry, you don’t need to become fluent in mortgage language overnight. It’s still a good idea to familiarize yourself with the key terms so you can navigate the process with confidence. Let’s take a look at some of the common mortgage terms you’ll come across:
Adjustable Rate Mortgage (ARM): This type of mortgage has an interest rate that can change over time based on a market index.
Amortization: It refers to the gradual reduction in the amount owed on a mortgage as payments are made.
Annual Percentage Rate (APR): This measures the annual cost of a loan to the borrower, including various costs such as mortgage insurance, discount points, and loan origination fees. It’s a useful tool for comparing costs between lenders.
Appraisal: An estimate of a property’s value conducted by a professional appraiser, often required by mortgage lenders before approving a loan.
Assessed Value: The value of a property determined by taxing authorities for the purpose of calculating property taxes.
Assumable Loan: A loan that can be transferred or taken over by a buyer.
Balloon Payment: A larger-than-usual final payment at the end of a balloon mortgage.
Cash to Close: The total amount a buyer needs to pay at the closing, including the down payment and closing costs.
Cash-out Refinance: A mortgage that replaces an existing loan, is larger than the balance on the existing loan, and pays out the difference in cash to the borrower.
Closing: The final step in the home buying process, usually involving a meeting where all documents are signed, and fees are paid to complete the sale.
These are just a few of the many mortgage terms you’ll encounter. From escrow and credit score to title insurance and underwriting, the mortgage landscape can seem overwhelming. However, by familiarizing yourself with these terms, you’ll be better equipped to understand the conversations and decisions involved in securing a mortgage. Remember, don’t hesitate to ask your lender or mortgage professional for clarification if you come across any unfamiliar terms or concepts. With this knowledge in your arsenal, you’re well on your way to becoming a more informed and confident homeowner.