Uncommon Mortgage Terms All Consumers Should Know

By: Toddstevens
Borrowers shouldn't have to be confused by topics and terms they don't understand in mortgage loans. This is especially true when considering that not knowing such terms can be financially disastrous should they sign a contract they don't understand. To remedy the situation, becoming familiar with financial terms is imperative.

FRM and ARM are two terms that all borrower should know about when obtaining a mortgage loan. FRM refers to a fixed rate mortgage, while the ARM is the adjustable rate mortgage. Fixed rates are just interest rates where the percent of interest each month doesn't change, while the adjustable rates can change accordingly. Which option the consumer chooses is based on current economic conditions and future projections of the economy, as well as one's budget.

The equity of one's home is important to understand. The equity is a number that is obtained by subtracting the amount owed in a mortgage loan from the total value of the property. As an example we could say that we have a property valued at $50,000 and an outstanding debt in mortgage loans valued at $40,000. We would then get an equity of $10,000 by subtracting the mortgage loan amount from the original worth.

When trying to value what a property is worth, lenders will use three common tactics. The first is actual value, which is simply the value that the home owner paid for the property when they obtained it. Next we have the appraised value, which is the amount a third party licensed professional estimates the property to be. Lastly we have the estimate value, which is just an estimate the lender makes based on their own internal assumptions. Which process is used is based on what the lender and the borrower agrees to, although the lender obviously has the ultimate say in which method should be used.

Should the buyer default on the mortgage loan, they will seek to lose their property. Two terms are used in this scenario: foreclose and repossess. A foreclosure is the act of a property being taken by the bank and usually being sold or auctioned to regain lost investment in the borrower. A repossession is more common among vehicles or movable types of property- such as a mobile home or moveable living space. Either case can be quite frustrating, but even after such acts borrowers can get such items back under certain terms under the agreement signed.

Lastly, a newer type of mortgage loan has given way to what is called a 100% mortgage loan. Mortgage loans typically require some form of deposit to lenders to minimize risk, but the 100% mortgage loan gives the borrower a 100% loan value. This almost always is followed by a higher interest rate, but allows consumers to get more money in a short period of time without short term expenses.

Final Thoughts

Mortgage loan terms can confuse borrowers to the point where they aren't even sure what they are signing for. If this is the case, always take a pause and ask for help either from a third party or from a financial professional at the lending facility. Doing so will enable the mortgage process to go by much smoother, and allow for consumers to lead a healthy repayment period without trouble.
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