For many of our first-time homebuyers at City Creek Mortgage, we like to keep things simple. A mortgage is a big life event, and you want a mortgage company that will help you with the details and keep things in perspective if any issues arise.
You want the best mortgage rate, and part of getting that will be understanding a few basics. With that in mind, here are ten important terms you’ll often hear in the mortgage world, plus their definitions.
During the appraisal process, you find out exactly how much the home in question is worth. An appraisal is generally carried out by a third party, and will help determine how much you should offer on a home and how much a lender will lend you.
Short for Annual Percentage Rate, this refers to the rate of interest that will be applied yearly to your mortgage. We emphasize “yearly” because some people mistakenly assume this is a monthly rate, which will lead to big mistakes in calculation.
Some loans have balloon payments, which are for the balance of the loan remaining at the end of the term. If you’re in one such loan, you must either have paid this balance or refinanced the loan by the due date.
Collateral is what a lender collects on if you fail to pay back the loan – in a mortgage, the home is the collateral.
This is the amount of out-of-pocket money you put into a home, generally between 10 and 20 percent of the home’s value.
If you stop paying a mortgage, one step a bank may take is foreclosure, where they take possession of your home and you are forced to move out.
Principal is the original borrowing amount, while interest is what you pay on top of this to incentivize a lender to take the risk and loan you money.
Private Mortgage Insurance
In some cases when down payment amounts are lower, lenders will require private mortgage insurance to protect them from risk of default.
A term for when a home is sold for less than what’s owed on the mortgage. In these cases, the lender may either forgive the remaining balance or ask you to pay the difference.
The length of the loan, which usually ranges between 10 and 30 years.
Want to learn more about basic mortgage terms, or interested in any of our mortgage services? The brokers at City Creek Mortgage are standing by.