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Home Mortgage Preparation :: Mortgage Loan Terminology
Mortgage Loan Terminology:
A Mortgage and Loan Terminology and Glossary
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Obtaining a mortgage can be a complicated process, so prepare yourself by learning this basic mortgage loan terminology:
Amortization
Amortization or an amortization table typically applies to fixed rate mortgages. It's a basic calculation that shows how your monthly payments, over a fixed period of time, will allow you to own your home.
A full amortization table will also show you the breakdown of each payment – how much is going towards the principal and how much to interest.
Balloon Mortgages
Balloon mortgages allow home buyers to make mortgage payments based on a 30-year repayment schedule, but the balance of the full loan is actually due after 5, 7 or 10 years.
This can be a feasible option for homeowners or real estate investors who aren't planning to live in their homes for a long period, but can be disastrous for those who are unable to make their final balloon payment.
Closing
The closing is probably the most exciting mortgage loan terminology – it is the end of the purchase process and when ownership of the home is officially passed from one homeowner to another.
Down Payment
Your down payment is a portion of the house's purchase cost that you pay up front. Ideally, banks would like to see a down payment of at least 20%, but many are willing to go as low as 5 or 10% for first-time buyers.
Fixed Rate Mortgages
A fixed-rate mortgage is a mortgage where the interest rate is locked in and remains the same for the duration of the mortgage. This means that the monthly payments also remain the same.
Mortgage Insurance
Private mortgage insurance, or PMI, is often required of buyers who are unable to make a down payment of at least 20 percent. It's essentially insurance for the lender in case you default on your loan.
Principal
The principal is the initial amount that's borrowed from the lender. The principal doesn't include any fees, closing costs or interest.
To learn more mortgage loan terminology, try the glossary at the U.S. Department of Housing and Urban Development website – http://www.hud.gov/offices/hsg/sfh/buying/glossary.cfm.
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Home-Mortgage-Preparation.com :: Mortgage Loan Terminology