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Loan Terminology

Loan Terminology

Loan Terminology

Loan Terminology can be confusing. Here is a list of terms that are used in the mortgage industry that may not be used in everyday life.

Amortization

Amortization is the payment of a debt in equal installments of principal and interest.

Appreciation

Appreciation is the increase in value or price of a property over time.

Credit score

A credit score is a number between 300 and 850 that is based on your debts and likelihood of repaying them on time. The lender uses A f credit score to determine the interest rate on your loan.

Debt-to-income ratio

A debt-to-income ratio is the comparison of a borrower’s monthly debt payments to the borrower’s monthly gross income, and it ultimately helps to determine the final loan amount.

Discount points

Discount points represent the fee associated with the note rate for your loan. One point equals one percent of the loan amount. For example, one point on a $100,000 loan would equal $1,000.

Down payment

A down payment is the portion of the purchase price that a buyer pays in cash at the beginning of the loan.

Earnest money

Earnest money is a deposit given by the buyer to the seller with the buyer’s offer to purchase the seller’s property.

Loan-to-value ratio

Loan-to-value (LTV) is a ratio that divides the home loan value into the property value. For example, if your home is worth $100,000 and you owe $60,000, then your loan-to-value ratio is 100,000 divided by 60,000, or 60 percent.

Mortgage insurance

Mortgage insurance is written by a private mortgage insurance company to protect the mortgage lender against loss due to default or foreclosure.

Origination fee

The fee the lender charges to generate the loan is called an origination fee. This is typically one discount point.

PITI

PITI is an acronym for the principal, interest, taxes, and insurance that make up your monthly payment.

Principal

The principal is the sum of money outstanding on your loan upon which interest is payable.

Second mortgage

A second mortgage is an additional loan on your home and follows your first mortgage in priority.

Underwriting

Underwriting is the analysis of risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. It involves evaluating the property and the borrower’s ability to repay the loan.

Loan Terminology

Loan Terminology