Mortgage Terminology Part 3
These are some of the common terms you will see used when you are purchasing a home and getting a mortgage. Learning what they mean will help you avoid misunderstandings and make better decisions.
Appraisal – A real estate appraisal is conducted by a certified professional who offers a written report that provides lenders justification for the price of a home to be purchased. The appraisal used the condition and situation of the home to be purchased and compares it to other recent home sales in the area. A formula is used to add or subtract value for particular amenities such as a new roof, garage, and age of home to ensure a fair comparison.
Closing costs – Closing costs vary depending upon the type and location of the home to be purchased. They are typically divided into two categories: non-recurring closing costs and prepaid or recurring closing costs. The non-recurring closing costs are paid only once, either separately or as part of the mortgage loan. Recurring or prepaid closing costs are paid repeatedly over time and include items such as property tax and homeowners insurance included as part of the mortgage payment.
Other closing costs – Other closing costs are anything that is not actually part of the mortgage instrument, such as appraiser fees, filing fees and other miscellaneous charges paid in order to finance your mortgage.
Amortization – Amortization refers to the term of your loan. In other words, it is the number of years it will take to pay back your mortgage loan.
Closed Mortgage – A closed mortgage is a mortgage loan that has a locked-in payment schedule. Also, the loan may not be prepaid or refinanced before the end of the original term of the loan.
Open Mortgage – An open mortgage allows for prepayment or renegotiation at any time without penalty. Typically, a home purchaser will pay a higher Interest rate for an open mortgage, but this mortgage offers more flexibility.
As always before purchasing a home, consult with a reputable and lisenced mortgage broker before making your buying decisions. Call us at Averbach Mortgages for unbiased advice.
