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amortization
The process of
paying the principal and interest on a loan through regularly scheduled
installments. Initially, most of each payment is applied toward interest owed,
and later in the loan term increasingly applied toward
principal.
annual percentage rate
(APR)
A measure of interest rate that expresses
the cost of a mortgage as a yearly rate on the loan balance. The APR assumes the
loan is held for its full term. For adjustable-rate loans, the APR assumes the
loan's index doesn't change from its initial value.
appraisal
An opinion of the
value of a property at a given point in time.
basis point
A basis point is
one one-hundredth of one percentage point. For example, the difference between a
loan at 8.25 percent and a mortgage at 8.37 percent is 12 basis
points.
fixed-rate
mortgage
A home loan with an interest rate that
will remain at a specific rate for the term of the loan. About 75 percent of all
home mortgages have fixed rates.
interest
rate
The fee, expressed as a percentage,
charged for a loan. The interest rate also helps determine the monthly payment.
For adjustable-rate loans, the interest rate may change from its initial
level.
lender
A bank, savings institution, or mortgage company that offers home
loans.
loan application
The first step toward submitting a home loan requires the borrower
to itemize basic financial information.
mortgage
In casual use, a sum
of money borrowed to purchase a home at a certain interest rate using the
property as collateral. In formal use, a mortgage is the legal document that
pledges property as collateral for a loan.
mortgage banker
A company that
provides home loans using its own money. The loans are usually sold to investors
such as insurance companies and Fannie Mae.
mortgage broker
A company that
matches lenders with prospective borrowers who meet the lender's criteria. The
mortgage broker does not make the loan, but receives payment from the lender for
services.
mortgage-interest
deduction
The tax write-off that the Internal
Revenue Service allows most owners to claim for annual interest payments made on
real estate loans.
prequalification
A lender's
preliminary assessment of a buyer's ability to pay for a home, and an estimate
of how much the buyer may borrow.
refinancing
The process of
replacing an older mortgage with a new mortgage that has better
terms.
underwriting
The process in which lenders evaluate the risks posed by a
particular borrower and set appropriate conditions for the
loan.
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