Home Loan Lingo
Have you ever seen the Charlie Brown episode where a teacher’s
voice becomes senseless noise, and as the mouth is moving
only incoherent sound is coming out?
For inquiring minds, this sound is hard to find or recreate,
but it was made with a trombone and a plunger as a mute!
What does this crazy fact have to do with home loans and
mortgage? A great deal, actually. Any time you hear people
speaking a language you do not understand, you will not receive
any information they are trying to give you. Whether it is
medical terminology, Swahili or legal jargon, you are bound
to end up with the same lack of knowledge you went in with
after talking to someone in a field of expertise or native
language other than your own.
This also holds true with mortgage vocabulary. In order to
understand home loans and mortgages, you need to know the
meanings of some common mortgage terms. Once you know the
terms you can learn as much as you want about home finance,
and this will aid you immensely in your own home finance decisions.
You may hear of the word amortization. This means that after
a set period of time you pay off your loan by regular payments
that include both interest and principal.
The famous APR, acronym for Annual Percentage Rate, is the
amount of the loan you will pay on an annual basis. This included
points, interest and loan fees.
Closing is what it sounds like. It is when the sale of the
house is complete, all necessary loans are finalized and all
pertinent documents are signed. This act is often also called
A cosigner is a person that can vouch for the fact that you
will pay off your loan. This person offers him or herself
as monetary insurance, promising to pay the loan in the case
that the purchaser of the loan does not pay it.
A down payment is cash paid by the home buyer at the time
of the initial purchase. This is usually a small portion of
the entire cost of the house, which can be paid through loans
and other means.
Fannie Mae is the Federal National Mortgage Association that
buys home loans from lenders and sells them to investors.
FHA is the Federal Housing Administration. This organization
sets standards for home loans and offers mortgage insurance
to those with home loans.
Points are synonymous with an upfront fee to reduce the interest
rate of your home loan. The more points you pay originally,
the lower your interest will be over the long term.