For most people the mortgage industry seems to speak a foreign language, with terms and acronyms that are vague and unfamiliar. And of course, when dealing with large sums of money such as those found in a home mortgage, you want to try to understand the language as much as possible in order to avoid making mistakes. So here is a little primer on some of the most important terms used when getting a mortgage or home loan.
There are four types of mortgages that are generally available and those are fixed rate, adjustable rate, convertible and special loans.
Fixed Rate Loans - usually these are found in either the 30 year loan or 15 year loan category, and this simply means that you pay a fixed payment each month over the course of either the 30 years or 15 years.
Adjustable Rate Loans - this is where your payment can fluctuate depending on the prevailing interest rate at the time. If interest rates rise, then your payment goes up and if interest rates fall, your payment goes down instead.
Convertible Loans - these are loans that may start out as either a fixed rate or an adjustable rate mortgage, and then can be converted over to the opposite kind of loan instead. Many people will use this type of loan to start out as an adjustable rate mortgage and then convert over to a fixed rate mortgage when interest rates are at their lowest.
Special Loans - these include FHA loans for first-time homebuyers and folks with credit problems, and also VA mortgage loans for veterans of the Armed Forces and their families.
There are other terms that you need to know when it comes to getting a home mortgage as well and they are:
Appraisal - this is where you pay an independent person to correctly assess the value of your home using excepted market calculations.
Closing costs - these are fees that are usually payable when the mortgage papers are signed that pays for the transfer of the ownership of the home.
Points - this is a value that typically relates to 1% of the total cost of the home being mortgaged.
Escrow - this is where money is often held by a neutral third party in a transaction of two or more people.
Pre-qualify - this is where a lending institution will state that you do qualify for receiving a home mortgage for a certain price range of home.
Pre-approval - this is where a lending institution has already run the necessary paperwork and approved a home mortgage loan for a certain amount.
There are other special terms and acronyms used by the mortgage industry, but the ones listed above are perhaps the ones that are most commonly used. Hopefully this will help you be more informed when you try to get your next home mortgage loan.
Steadman Issenburg writes on many consumer related topics including real estate. You can find mortgage rate calculators and compare mortage interest rates and more by visiting our Real Estate website.
