Understanding Mortgage Terminologies When Speaking to a Mortgage Lender in NY
Talking about your mortgage can be confusing, especially if you’re unfamiliar with loan terminology and mortgage terms. Understanding these terms is the key to making sure you are fully aware of what goes on in your mortgage process and effectively communicating with your mortgage lender.
If you’re thinking of looking up mortgage terminology, here are ten commonly-used mortgage terms to keep in mind when speaking to your lender:
1. Annual Percentage Rate (APR)
The annual percentage rate (APR) is defined as the total cost per year of taking out a mortgage. It consists of the mortgage interest rate and other applicable fees a lender might charge you depending on the type of loan you apply for.
The APR is the best way to gauge the toll a total cost of taking out a mortgage will take on your finances. The Truth in Lending Act protects borrowers by requiring lenders to disclose the APR when you take out a loan, in order for borrowers to understand the total loan cost.
2. Borrower Default
Borrower default happens when a borrower is unable to pay back a loan as promised.
Defaulting on debt can vary from lender to the type of your debt. A loan might not be defaulted if you’re only a few days behind on your payment and willing to communicate with your lender on how you might pay it back. But, if a borrower has been unresponsive for months regarding late payments on their loans, the lender might forward their debt to a debt collector. This could result in a borrower being reported to credit bureaus, which could harm their credit.
If you might default on your loan, be upfront and communicate effectively with your lender to look for solutions together.
A co-signer is defined as an individual who assists a borrower with a lower credit score or no credit history to qualify for a loan by signing off on it. Co-signing on a loan means that the co-signer is held responsible for paying off the loan if a borrower defaults or misses a mortgage payment.
Be sure to co-sign only if you can, as it may also damage your credit score apart from the primary borrower’s credit as well.
4. Credit Score
A good credit score is essential to qualifying for a loan. Before a lender can approve your loan, they assess your credit score to determine the risk of taking you on as a borrower. Most companies use the FICO (Fair Isaac Corporation) credit score model to assess a borrower’s credit score.
A FICO credit score is determined on a number of factors:
- Payment history: 35%
- Current debt amount: 30%
- Credit history length: 15%
- Credit mix: 10%
- New credit activity: 10%
FICO’s credit score model assigns points ranging from 300 to 850 to determine a borrower’s credit score. A good credit score is at least 670 points.
5. Fixed Interest Rate
A fixed interest rate on a loan means that the interest rate does not change throughout the loan’s duration. A fixed-rate mortgage has a fixed interest rate, which means that monthly mortgage payments do not change. The consistent rate allows a borrower the room to budget ahead when making loan payments.
6. Loan Amortization
Loan amortization applies to fixed interest rate loans. Loan amortization is a process that calculates the amount of money that goes toward the principal and interest for each installment of a mortgage.
7. Loan Agreement
The contract between a borrower and a lender is defined as the loan agreement. A loan agreement usually contains the following information:
- A borrower’s total repayment amount, including principal and interest
- Annual percentage rate (APR)
- Fee charges for late payments
- A detailed payment schedule
- Instructions on how to pay your loan
- A protection clause for the lender if you default on your loan
It is important to read through and understand your loan agreement thoroughly. Be sure to discuss your agreement with your lender and go over key points that you need to know about.
8. Loan Deferment
If a borrower defaults on their payments by a few days, a lender might agree to a loan deferment. During the loan deferment period, a borrower is not responsible for paying the loan. However, the loan continues to accrue interest, and the loan deferment extends the duration of a loan. This can lead to an increase in the overall cost of the mortgage.
9. Loan Origination Fee
A loan origination fee is a lender’s charge for expenses relating to your loan that are deducted from the loan amount. The loan origination fee covers the lender’s costs of processing your loan. The loan origination fee is usually reflected in the APR.
10. Variable Interest Rate
An adjustable-rate mortgage operates on a variable interest rate. The opposite of a fixed interest rate, the variable interest rate fluctuates over the duration of the loan based on a benchmark rate specified in the loan agreement.
This means that a borrower’s mortgage payments can increase or decrease over the course of the loan term. A variable interest rate is adjusted according to the lender, so it requires effective communication between borrower and lender to make sure payments are made correctly and on time.
These are a few of the mortgage terms you might come across when speaking to a mortgage lender. Before jumping in and searching up ‘mortgage lenders near me’, make sure you are ready to learn about mortgage and all that it involves. Communicating effectively and being willing to learn about your mortgage can help you avoid a lot of risk in the long-run.
Need more info?
If you’re ready to find a ‘mortgage lender near me’ Procopio Real Estate is here to assist you on your journey. If you are located in Syracuse, give us a call at 315-928-5394 and we’d be happy to help you understand mortgage terminology and the entire mortgage process.
We offer a wide range of real estate services, including buying and selling properties, mortgage approval, and more.