Many people are confused by the highly specialized language used by mortgage brokers. And while the words and phrases associated with the profession may seem complex, understanding them is an absolute necessity whether you are a first time home buyer or are beginning mortgage broker classes on our site. Here are some words and phrases that you – whether a student or someone trying to secure a mortgage – should know.
Adjustable-Rate Mortgage (ARM) – This is a mortgage with a variable interest rate, which adjusts monthly, biannually, or annually. Other types of ARMs include Option-arms and hybrid mortgages. Generally these types of mortgages offer an initial rate for a limited period of time also known as a “teaser rate”.
Annual Percentage Rate (APR) – This is the actual interest rate you pay on your mortgage. By law – the Truth in Lending Act specifically – all mortgage lenders must disclose their APR.
Balloon Mortgage: With this kind of mortgage, a large portion of the borrowed amount is due to be repaid in a single payment at the end of the loan period.
Closing Costs: These are fees paid at the closing of a real estate transaction. They include lender fees and third-party charges, along with taxes and transfer fees.
Debt-to-Income Ratio: Also abbreviated as DTI, this is a percentage of a consumer’s gross income goes towards paying his/her debts. There are several online calculators including this one, which will help you estimate whether you qualify for a mortgage loan.
Escrow: This is a third party intermediary who holds funds until a transaction between a borrower and a lender is complete. By agreement, neither party can access these funds until the conclusion of their business.
Foreclosure: This is where a lender or bank sells a property in which a borrower has failed to meet the conditions of his/her loan. Two methods of avoiding foreclosure are to either refinance your loan or to enter into a forbearance plan. A forbearance plan allows a borrower’s payments to be reduced or suspended until they are current again.
Mortgage: This is a loan used to purchase property.
Mortgage Broker: This is an independent loan originator who works on behalf of consumers. They are not affiliated with a particular bank and therefore work with several potential lenders.
Finally, if as a consumer you need further clarification of the terms and words associated with mortgage brokers, there are many online sources that will help you. As a student of our school you will see further explanations on our site.