Mortgage and home loan terms and their meanings

The mortgage industry, like any other, has its own lingo and terms. Most of these terms may be know to those outside the industry, but if you are new to buying real estate, some of them can be confusing. In order to better understand the process of obtaining a home equity loan or mortgage, one must understand what the lender or realtor is saying.

So, we will outline a few of the most commonly used terms you might hear when buying a home here”

Adjustable Interest Rate, also known as a Variable Interest Rate: An interest rate on a loan that will automatically adjust over time, generally tied to some established worldwide financial index.

Annual Percentage Rate: The interest rate on a loan, expressed in terms of a “per year” measurement. Lenders must disclose the APR in writing when you obtain a loan.

Closing Costs: Expenses associated with buying a property that are paid when the contract is signed. Such costs might include property tax, loan origination fees, and other fees due to the realtor or lender in exchange for preparing the contract.

Credit Bureau: Three major companies, Experian, Equifax and Trans Union, that make a business of keeping track of your financial transactions and release them in a credit report.

Credit Report: A document provided to lenders upon request that offers a summary of your financial history in order help the lender decide if you are a good risk to obtain the loan.

Credit Score, also known as a FICO Score: A three digit number between 300 and 850 that represents, in a nutshell, your overall credit worthiness. The higher, the better. A score of 620 or so and higher will generally provide you with the best lending terms.

Equity: The difference between the market value of a piece of property and the amount owed on it. If the value is $250,000 and the mortgage balance is $100,000, the equity is $150,000.

Fixed Interest Rate: An interest rate on a loan that does not adjust over time. The rate will remain the same for the lifetime of the loan.

Home Equity Line of Credit: Similar to a home equity loan, a line of credit represents a loan against the equity of a property that may be used as needed, in small chunks or large ones. A line of credit is usually “tapped” using a special credit card or checkbook. Repayment schedules are flexible, depending on the amount borrowed. Interest rates on these loans tend to be variable.

Home Equity Loan: Also known as a second mortgage, a home equity loan is a sum of money borrowed against the portion of a property that the owner has already paid for. These loans may be used for many purposes, such as remodeling, debt consolidation or education expenses. These loans usually have a fixed-term repayment schedule.

ITIN Home Loan: A loan designed for immigrants or others who do not have a Social Security Number. Instead, the borrower may apply using an Individual Taxpayer Identification Number, available from the Internal Revenue Service. These loans are not widely available.

Reverse Mortgage: A home loan against a house that is fully paid for that returns cash to the owner. No repayment is required until some future time, usually when the house is sold or when the owner dies. At that time, the loan is repaid in full. The repayment amount may not exceed the then-current value of the property.

Subprime Loan: Loans that are offered to people with damaged or poor credit. These loans tend to come with higher interest rates, higher fees, and more prepayment penalties