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Mortgage Basics: Payments Terms
It can be confusing to understand all the mortgage terms used when purchasing your home. If you’re not up on the lingo and abbreviations, it can feel like it’s a completely different language. Here’s a few payment terms that you should be familiar with before applying for your mortgage:
- Amortization: The gradual repayment of a mortgage loan, both principal and interest, by installments.
- Amortization Term: The length of time required to amortize the mortgage loan expressed as a number of months. (ie. 360 months is the amortization term for a 30-year fixed-rate mortgage)
- Closing Costs: Expenses over and above the price of the property that are incurred by buyers and sellers. This can include:
- Origination Fee: A fee paid to the lender for processing a loan application. Stated in points. 1 point=1% of the mortgage amount.
- Escrow: A financial arrangement where a 3rd party holds and regulates payment of the funds required for two parties involved in a transaction. For example, the deposit of funds into an escrow account will be disbursed upon the closing of a sale of real estate.
- Deposit: Sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
- Down Payment: Part of the purchase price of a property that is paid in cash and not financed.
- Escrow Disbursement: The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
- Escrow Payment: The part of your mortgage payment that is held by a servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.
- Interest: The fee charged for borrowing money.
Interest Accrual Rate: The % rate at which interest accrues on the mortgage.
- PITI: The four components of a monthly mortgage payment.
- Principal: The part of your monthly payment that reduces the remaining balance of the mortgage
- Interest: Fee charged for borrowing money
- Taxes and Insurance: Monthly cost of property taxes and homeowners insurance
- Prepayment Penalty: A fee that may be charged to a borrower who pays off a loan before it is due.
- Refinance: Paying off one loan with the proceeds from a new loan using the same property as security.
Have questions about your mortgage or interested in refinancing? Lendello’s team of well-trained Mortgage Consultants can help! Reach out to us today.