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Mortgage Terms

A mortgage is a loan taken out to purchase a home.  The borrower puts up the title to that home as collateral.  If the borrower doesn’t pay back the loan on time, the lender can foreclose on the home and sell it to pay off the loan.  Anyone considering the purchase of a home should be very familiar with the terms and details of mortgages.  ACCC has compiled the list below to help you get started.

Adjustable rate mortgage (ARM):  A mortgage in which the interest rate is not fixed but is tied to an index and is periodically adjusted as the rate index moves up and down. The initial rate is lower than the fixed rate mortgage. Such ARMs commonly provide for an option to convert to a fixed rate mortgage.

Amortization: A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Annual percentage rate (APR): The actual cost of borrowing money, expressed in the form of an annual rate to make it easier to compare the cost of borrowing money among several lenders or sellers on credit. The APR includes all the financing costs of a mortgage, including points, origination fees and other finance charges and the mortgage interest.

Appraisal: A written estimate of a property's current market value, based on recent sales information for similar properties, the current condition of the property, and how the neighborhood might affect future property value.

Balloon (payment) mortgage: A mortgage providing for specific payments at stated regular intervals, with the final payment considerably more than any periodic payments. Usually paid over a short term, such as five to seven years. This type of mortgage may be beneficial if you move before the final payment, as you can benefit from a slightly lower rate.

Closing Costs: Fees incurred in a real estate or mortgage transaction and paid by borrower and/or seller during the closing of the mortgage loan. These typically include a loan origination fee, discount points, attorney's fees, title insurance, appraisal, survey, and any items that must be prepaid, such as taxes and insurance escrow payments. The cost of closing is usually about 3 percent to 6 percent of the mortgage amount.

Down Payment: The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer's own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.

Escrow Account: Account held by a lender containing funds collected as part of mortgage payments for annual expenses such as taxes and insurance, so that the homeowner does not have to collect a large sum when these fall due.

FHA (Federal Housing Administration) mortgage: The Federal Housing Administration is a federal agency established by Congress in 1934. The FHA insures mortgage loans made by FHA approved lenders on homes that meet FHA standards. Generally FHA loans require lower down payments than conventional mortgages and have less stringent income requirements.

Fixed rate mortgage: A mortgage with an interest rate that remains constant for the life of the loan, generally repaid over 15 or 30 years.

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American Consumer Credit Counseling (ACCC) provides nonprofit credit counseling, debt reduction programs and debt relief services to help consumers nationwide figure out how to pay down debt and how to get out of debt quickly. Our professional credit counselors provide free credit counseling to help individuals and families find the right debt solutions to help with credit card debt and avoid debt in the future. Our debt management programs provide help with debts by consolidating payments on credit card debt and other unsecured loans, with credit card negotiation services to reduce credit card debt interest rates and finance charges, helping consumers to pay off debt more quickly.

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