Mortgage Glossaries – Klamath River Mortgage Web Info

Adjustable Rate Mortgage

An adjustable rate mortgage, known as an ARM, is a mortgage that has a fixed rate of interest for only a set period of time, typically one, three or five years. During the initial period the interest rate is lower, and after that period it will adjust based on an index. The rate thereafter will adjust at set intervals.

Amortization

The amortization of the loan is a schedule on how the loan is intended to be repaid. For example, a typical amortization schedule for a 15 year loan will include the amount borrowed, interest rate paid and term. The result will be a month breakdown of how much interest you pay and how much is paid on the amount borrowed.

Annual Percentage Rate

Is the rate of interest that will be paid back to the mortgage lender. The rate can either be a fixed rate or adjustable rate.

Appraisal

Is conducted by a professional appraiser who will look at a property and give an estimated value based on physical inspection and comparable houses that have been sold in recent times.

Bi-Weekly Mortgage

This type of mortgage has an impact on when a loan is paid and how frequently. In a typical mortgage, you make one monthly payment or twelve payments over the course of a year. With a Bi-Weekly payment you are paying half of your normal payment every two weeks. This is the equivalent of thirteen regular payments, which in turn will reduce the amount of interest you pay and pay off the loan earlier.

Closing Costs

These are the costs that the buyer must pay during the mortgage process. There are many closing costs involved ranging from attorney fees, recording fees and other costs associated with the mortgage closing.

Construction Mortgage

When a person is having a home-built, they will typically have a construction mortgage. With a construction mortgage, the lender will advance money based on the construction schedule of the builder. When the home is finished, the mortgage will convert into a permanent mortgage.

Debt-to-Income Ratio

Lenders look at a number of ratios and financial data to determine if the borrowers are able to repay the loan. One such ratio is the Debt-to-Income ratio. In this calculation, the lender compares the monthly payments, including the new mortgage, and compares it to monthly income. The income figure is divided into the expense figure, and the result is displayed as a percentage. The higher the percentage, the more riskier loan it is for the lender.

Down Payment

Is the amount of the purchase price that the buyer is paying. Generally, lenders require a specific down payment in order to qualify for the mortgage.

Equity

The difference between the value of the home and the mortgage loan is called equity. Over time, as the value of the home increases and the amount of the loan decreases, the equity of the home generally increases.

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