Demystifying Mortgage Broker Lingo

Refinancing can be an exciting time because you can be looking forward to lower payments and lower interest rates, and sometimes – if you’re using loan proceeds to pay off other debts – a chance to take control of your spending. However, when you refinance you’re going to be exposed to some terms you may not be as familiar with.

Adjustable Rate Mortgage (ARM): A type of home loan where the interest rate charged can fluctuate up or down at different times during the life of your loan.

Annual Percentage Rate (APR): This is the cost of your loan given as a percentage rate. The APR includes the principal, interest and most of the fees charged for the loan. This is a good way to compare loans so you can decide on the best loan for you.

Balloon Payment: Some mortgage loans have lower monthly payments for a certain period of time – usually just interest. They then require you to pay off the remaining balance of the loan in one large payment. This is known as a balloon payment. A mortgage with a balloon payment usually saves you money in the short term, it can be risky because it’s really hard to come up with that much money in one payment. If you get a loan with a balloon payment you really need to plan on how you’re going to come up with that money.

Closing Costs: These are miscellaneous costs related to borrowing money. They include things like document preparation, appraisals, title searches, etc. Usually they’re reasonable, but sometimes they’re inflated.

Credit Report: There are private companies that gather information about your credit transactions – home loans, car loans, credit cards, etc. These companies keep track of whether or not you pay your bills on time. Lenders will examine your credit report when trying to decide whether or not they’re willing to give you a loan. It’s important for you to be aware of alll the information in your credit report because mistakes can occur. If there is information on your credit report that isn’t accurate it can stop you from getting a loan or affect how much a loan will cost you.

Credit Score: This is a number value given to all the information in your credit report. The credit reporting agencies that keep track of your loans and payment history use a formula that only they know to assign a number to your credit report. The higher the number, the higher lenders believe are the chances that you’ll repay any money you borrow.

Equity: This is the difference between what your house is worth right now and what you owe on it. Let me give you an example: If your house is worth $300,000 and you owe $100,000 on the balance, you have $200,000 in equity.

Interest: Interest is the amount of money lenders will charge you for borrowing their money. Interest is figured as a percentage. Because your credit history directly affects how expensive borrowing money will be it’s really important to maintain a good credit rating.

Principal: The amount of money that you borrow in a credit transaction.

Total Amount to Repay: If you add up all loan fees, points, as well as monthly payments, you’ll come up with the total amount to repay.

These are just some of the terms that can come into play when refinancing a mortgage loan. Your mortgage broker may forget that he deals with these terms on a daily basis. While he spits them out as quickly as a Paz dispenser, you may be confused about what he’s saying. If you’re in doubt: stop him. Be honest and ask what he means. A good broker will have no problem explaining the meaning to you.

Enjoy your interactions with your mortgage broker and learn as much of the terminology as you can. It will make your refinancing experience a smoother, more fun process. Enjoy it!

Need to unlock your home's equity - but have a few questions? Why not consider a free private email consultation with me, Darrin Roseborsky? There's no obligation or commitments to worry about. Just helpful answers to your questions. Use the short form in the top-right corner to get started. And in a few minutes, you'll have the answers to all of your questions.