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Mortgage Basics

A mortgage is a loan that is secured by the value of your home or other real estate. Mortgages may be offered at a fixed interest rate for the life of the loan, or at a rate that may change over the life of the loan. Repayment terms range from 15 to 30 years, depending on the type of loan.

Some terms that you might hear in discussing mortgages include:

  • Amortization: The process of paying the principal and interest on a loan through regularly scheduled installments.

  • Annual Percentage Rate (APR): The cost of the loan expressed as a yearly rate on the balance of the loan.

  • Application fee: The fee that a lender charges to process a loan application

  • Balloon loan: A mortgage in which monthly installments are not large enough to repay the loan by the end of the term. As a result, the final payment due is the lump sum of the remaining principle.

  • Closing costs: Expenses incidental to the sale of real estate, including loan, title and appraisal fees

  • Convertible adjustable-rate mortgage: A mortgage that starts as an adjustable-rate loan but allows the borrower to change it to a fixed-rate mortgage during a specified period of time Equal Credit Opportunity Act: A federal law that prohibits a lender or other creditor from refusing to grant credit based on the applicant’s sex, marital status, race, religion, national origin or age.

  • Fannie Mae: The Federal National Mortgage Association (FNMA)

  • Federal Housing Administration (FHA): This government agency operates a variety of home-loan programs.

  • Fixed-rate mortgage: A home loan with an interest rate that will remain constant for the term of the loan.

  • Freddie Mac: The Federal Home Loan Mortgage Corporation

  • Housing expense ratio: The percentage of gross monthly income devoted to housing costs

  • Index: Financial tables used by lenders to calculate interest rates on adjustable mortgages and on Treasury bills

  • Interest rate: The sum, expressed as a percentage, charged for a loan.

  • Interest rate caps: A limit on the amount that can be charged to the monthly payment of an adjustable-rate mortgage during an adjustment period.

  • Interest rate ceiling: The highest interest a lender can charge for an adjustable-rate mortgage

  • Interest-only loan: A mortgage on which the borrow pays only the interest that accrues on the loan balance each month, and so the outstanding balance does not decline with each payment

  • Late charge: A fee imposed on a borrower when the borrower does not make a payment on time

  • Mortgage acceleration clause: A clause that allows the lender to demand that the entire balance of the loan be repaid in a lump sum, usually if the house is sold or refinancing, the title changes hands or the borrower defaults

  • Origination fee: A fee charged for processing a loan; also called “points” PITI (Principal, Interest, Taxes and Insurance): The figure is designed to represent the borrows actual monthly mortgage-related expenses

  • PMI (Private Mortgage Insurance): A special type of loan insurance that is often required if the borrower’s down payment is less than 20 percent of the home’s purchase price

  • Qualifying ratios: The formulas that lenders use to determine how much a potential buyer can borrow

  • Rate lock: An option to set an interest rate during the loan application process

  • Total expense ratio: The percentage of monthly debt obligations relative to gross monthly income

  • Treasury Index: An index used to determine interest rate changes for adjustable rate mortgages

What Our Customers Say

I am writing to bring to your attention the superior service I have received from your employee Ian Clardy. Throughout my recent mortgage application process, Ian has not only provided consistently clear, professional communication, but he also has always gone above and beyond to patiently and expediently address any of my concerns that arose along the way. In the 20+ years I have owned properties, and having gone through the mortgage and refinancing process at various points in between, I can honestly say that Ian was hands down the most responsive and service-oriented mortgage consultant I have ever worked with. His efforts to accommodate Trident’s customers should be commended. It is largely the result of my interaction with Ian that I will from this point forward unreservedly recommend Trident to friends, family, and colleagues alike. Ian is indeed a rare commodity, in the best sense of that term, and I believe that he is a tremendous asset to your organization. If you would like to talk with me further about my experience working with Ian, please do not hesitate to contact me. Sincerely, Dr. Edward J. Carvalho

~ Dr. Edward J. Carvalho