Master the Lingo: Make Good Use of Your Mortgage Terminology

Brandon Hardaway

Buying a house for the first time can be quite a stressful endeavor. It’s something you’ll only experience once and is sure to be one of the biggest investments of your life. Therefore, you should want to make negotiations as smoothly as possible by learning the mortgage terms. Before signing such an important binding agreement, it is imperative that you have some sort of understanding of mortgage loan terms.

Every loan begins with an originator, or, the mortgage creditor in charge of funding them. Mortgage creditors can be banks, credit unions, etc. Before loans are handed out, banks like to pre-qualify their clients. When they pre-approve, they simply look at your credit report from the three main credit agencies: TransUnion, Equifax, and Experian, then they will take a look at your debt management record. The secret to getting the best mortgage deal is to have the best credit rating and making sure your credit report isn’t a disaster.

When home loan shopping, it’s a good idea to look at recent mortgage rates charged by many different mortgage creditors around the world. There are a ton of different mortgage websites out there, where most of them allow you to calculate the best mortgage rates you could obtain with them that fall into your category of financial need. Rates are constantly changing. They are mostly dependant upon the stock market and mortgage market. For those of you that don’t like to deal with ever-changing rates, you always get a rate lock, but in order to get the benefits of doing this, you have to plan ahead and carefully watch the market. When requesting a home mortgage, you should be familiar with all eight as follows:

1) Fixed-rate mortgage (FRM)
This type of loan has a interest rate that remains unchanged throughout the duration of your loan. This type of mortgage saves people the trouble of having to redistribute their income due to rate changes, and the locked rate also protects you from rate increases.

2) Adjustable rate mortgages (ARM)
This home loan has a low interest rate during the beginning, and then it’s adjusted regularly in accordance with a pre-selected index. The interest rate changes are due to market conditions and national rates. Some ARMs use both adjustable and fixed interest rates ("hybrid loans").

3) Government loan
The Veterans Administration (VA) and the Federal Housing Administration (FHA) process the vast majority of home loans.

4) Jumbo mortgage
A jumbo mortgage surpasses the loan amount limits set by secondary market creditors.

5) 100% mortgage
This type of loan affords consumers the chance to mortgage without a down payment. The borrower pledges stocks and bonds to secure the loan.

6) Reverse mortgage
This loan turns a borrower's equity in their home into cash. Reverse mortgages are only available to elderly homeowners (62+ years). Borrowers don’t need to make any repayments until they die or stop using the house as their main residence.

7) Second mortgage
Some borrowers apply for second mortgages to pay for a vacation house and home improvements or to eliminate consumer debt with a lower rate of interest. Borrowers allocate their home as collateral. If you default on this mortgage, then your first mortgage becomes first priority.

8) Interest-only mortgage
With this loan, prospective borrowers repay only the monthly interest. Once the loan matures, they pay off the entire balance.

When you go to setup your mortgage loan, if you remember everything you’ve just learned, there is no doubt that when you walk out of that office, you just left with the best deal possible.

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