HOME EQUITY LOANS - A BASIC GLOSSARY
Home equity loans can be a great idea for individuals looking to get out of debt or make necessary repairs on their homes. During the process, you will come across a variety of terms and acronyms. We have gathered together some of the basic terms that you come across during your home equity loan. If you have any questions about any of these terms, make sure to consult with your mortgage lender.
ADJUSTABLE RATE MORTGAGE (ARM)
This type of mortgage has an interest rate that will change over time. Typically the interest rate will be lower than fixed mortgage products.
AMORTIZATION
Loan payments that will cover both principle and interest in one payment. Your lender will likely give you an amortization schedule outlining your payment schedule.
ANNUAL PERCENTAGE RATE (ARM)
This is the cost of credit on a yearly basis.
APPRAISED VALUE
An appraiser will determine the value of your home based on experience, market data, and other information.
CAP
This is the limit on how much an interest rate can increase over the life of your loan.
CLOSING / CLOSING COSTS
This is the final step in the real estate transaction. This would include the delivery of the deed, signing of the notes, and final disbursement of the funds. There will be various fees associated with a closing, such as attorney fees and taxes, that are called closing costs.
DEPRECIATION
An overall loss on a property due to age, physical deterioration, and economic factors.
DISCOUNT POINT
A buyer can pay the lender a set fee for a lower interest rate. This is usually a percentage of the loan itself.
EQUITY
This is the amount of money that you have vested in your home. This can be determined by subtracting the lien amount from the property's value.
EQUITY LOAN
A loan or line of credit that is based on the amount of equity that you have in your home. Your home is essentially used as collateral.
FIXED INTEREST RATE
An interest rate that remains constant throughout the life of the loan. A fixed-rate mortgage will have the same interest rate and payments for the length of the loan.
HOME EQUITY LINE OF CREDIT
Similar to a home equity loan, but you receive a line of credit that you can draw upon at any time.
HOME EQUITY LOAN
A loan based on the amount of equity you have in your home.
INTEREST
This is the cost for borrowing money.
INTEREST RATE
This is the percentage of the loan amount that you must add to your principle, for the privilege of borrowing money.
LOAN-TO-VALUE RATIO This is the ratio between the amount of the loan and the actual value of the home. Some loans can give you up to a 125% Loan-To-Value Ratio.
MARKET VALUE
This is the price that buyers would be willing to pay for your home, at the present time. This can vary from the actual sale price of the home.
PITI (Principal, Interest, Taxes, and Insurance)
This is the usual breakdown for mortgage payments.
PRINCIPAL
The amount of your original loan before interest was added.
Author John Ross
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