Mortgage terminology can sometimes seem like a completely new language. Don’t worry: Most homebuyers aren’t fluent in “mortgage-ese.” This helpful glossary covers common mortgage terms you may hear.

Amortization

Your amortization schedule is the process and timeline for paying off your loan with your regular payments.

Annual Percentage Rate (APR)

Your APR describes the cost of your mortgage on a yearly basis. This rate may be slightly higher than your agreed-upon loan rate because it includes points and other fees.

Appreciation

Appreciation is a rise in a property’s value, not including any increases from home improvements.

Assumable Loan

This type of loan can be passed from a home’s seller to a new buyer. The buyer takes over, or “assumes,” the rest of the loan payments.

Conforming Loan

This type of mortgage loan is equal to or less than the maximum amounts established by these federal agencies:

·         Federal National Mortgage Association (Fannie Mae)

·         Federal Home Loan Mortgage Corporation (Freddie Mac)

Construction Loan

This short-term loan allows you to finance the cost of building your home. Your lender releases funds to your builder at key milestones as the project is completed.

Debt-to-Income (DTI) Ratio

The DTI ratio helps lenders determine your likely ability to repay your mortgage. To find this ratio, your lender will compare your monthly debt payments — including your new mortgage — to your monthly income. The higher your DTI ratio, the more debts you carry and the greater risk you may pose.

Down Payment

This payment is the initial, upfront portion of your loan that you pay as a lump sum when you settle, or close, on your house.

Escrow Payments

Your mortgage lender might require you to include these kinds of payments in your monthly mortgage payments. They’re essentially future payments to cover costs such as property taxes and homeowners, flood and mortgage insurance.

Home Equity

You develop equity in your home when its value increases and/or when you owe less on your home because you’ve made loan payments.

Jumbo Loan

A jumbo loan is a mortgage that exceeds the maximum loan amount established by Fannie Mae and Freddie Mac. You usually pay a higher mortgage interest rate on this type of loan.

Loan-to-Value (LTV) Ratio

This ratio compares your loan amount to the value of your home. For instance, if you want to borrow $200,000 to buy or refinance a home worth $230,000, your LTV would be 87%. (It’s calculated as:

$200,000 / $230,000 = 87%) Lenders use the LTV ratio to measure risk when they pre-qualify or qualify you for a home mortgage. Depending on your loan type and your LTV, your lender might require you to get private mortgage insurance (PMI).

Lock

An interest rate “lock” is a set period (30-180 days at Howard Bank) during which your lender guarantees a certain interest rate on your loan. If mortgage rates rise during that time and you’re still in the middle of completing the approval process, your locked rate stays the same. At Howard Bank, you can lock in your loan rate anytime after you apply for your mortgage.

Mortgage Interest

Interest is the ongoing fee you pay your mortgage lender to use borrowed money to buy your home. Mortgage interest is usually tax-deductible.

Points

Points are the amount of prepaid interest you give to your lender when you close on your home. One point is equal to 1% of the loan amount (so two points on a $100,000 mortgage would cost you $2,000). You typically can reduce your loan interest rate and payment amount by choosing to pay extra points when you close on your loan.

Private Mortgage Insurance (PMI)

Your mortgage lender may require you to buy this extra insurance to protect them in case you stop making payments (“default”) on your loan. The type and amount of PMI you need will differ depending on your loan type and LTV ratio. You’ll typically need PMI if your LTV ratio is 80% or higher.

Title

This document legally verifies who owns a particular piece of property. A home’s title deed details the history of the home’s ownership and transfers to new owners. The person or organization that “holds” the title to a home is the legal owner. Your lender holds the title to your home until you completely pay off your mortgage, then the title is transferred to you.

Title Insurance

Your lender will require you to obtain title insurance before you close on your mortgage. This special type of insurance protects both you and the lender in case your home’s seller (or a previous owner) isn’t the free-and-clear owner of the property. If that’s the case, the seller can’t transfer the title to you and you may incur extra costs. Title insurance could help pay for your legal fees and related expenses