subject: Common Mortgage Terms You Should Know [print this page] Common Mortgage Terms You Should Know Common Mortgage Terms You Should Know
While negotiating a mortgage contract with you, the mortgage company may use mortgage related terms not familiar to you. Since these terms pertain to your mortgage plan, you should be able to understand them so that you can make informed choices. Here I am listing out a set of common terms that most mortgage companies use when discussing mortgage plans with borrowers.
The terms discussed below are related to aspects regarding a borrower's monthly payments and duration of these payments :
Monthly payments
A monthly payment is the amount of money a borrower mandatorily pays each month to the mortgage lending company in order to fulfill the terms of his loan. Though monthly payments are fairly straightforward, you will need to be cautious of a few aspects that can affect you financially. A major factor that will influence your monthly payments is the interest rate offer that you selected. There are two types of interest rates most mortgage companies offer - variable rate mortgage and fixed rate mortgage.
If you have a variable rate mortgage, you will have to track fluctuations in market index which will affect your home loan interest rates accordingly. So when interest rates vary and you neglect to factor it into your monthly payments, it can lead to problems. With a fixed rate mortgage your monthly payments remain stable and it is a safe option if you want to avoid the risk of market fluctuations.
Monthly gross income
The term monthly gross income refers to your monthly income before tax and other liability related amounts deducted from it. A mortgage lending company generally considers this amount as the basis on which they calculate your mortgage repayment ability. Using your gross monthly income, the mortgage company assesses whether after deductions, a requisite percentage of your monthly income will be available to cover your monthly payments.
FHA loan
Some mortgage companies offer FHA loans to their borrowers. An FHA loan is a loan insured by the Federal Housing Committee. This insurance is generally given to mortgage lending companies which lend to home buyers who have a low income. An FHA insured loan will give the lender security in case the mortgage borrower defaults.
Equity
The equity of a house refers to the monetary value of a house minus the total debt a borrower owes to fulfill the loan. A mortgage company is likely to use the term equity when you apply for a second mortgage. This mortgage is approved by a mortgage company by taking into account the equity of your house. The company will make your house equity a security against which they sanction a new loan.
Mortgage companies will use terms like monthly payments, interest rates and monthly gross income when you apply for a loan with them. Along with familiarizing yourself with these terms, you can even hire a mortgage broker or a financial advisor who can help you understand various concepts while you interact with a mortgage company.
