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ISSUES
Mortgage: Glossary of Financial Terms
Annual Percentage Rate (APR):
a stated interest rate that reflects all the financing
costs of a mortgage. The APR includes points, origination
fees and other finance charges in addition to the interest on
the mortgage, and includes them all in a yearly interest rate.
As a result, the APR is usually higher than the interest rate
alone. It also provides a benchmark for comparing different types
of mortgages based on the annual cost for each loan.
Appraisal: an estimate of the value of a property,
made by a qualified professional called an appraiser.
Closing: the meeting between the buyer, seller
and lender (or their agents) where the property and funds legally
change hands. Also called the settlement.
Closing Costs: the costs and fees associated
with the official change in ownership of the property and with
obtaining your mortgage
that are assessed at the closing or settlement. Closing costs
include required certifications, insurance, taxes and other fees,
and typically total between 3 - 6 percent of the mortgage amount.
Credit Report: a report that documents a borrower's
credit history and current status. Borrowers can examine their
own credit reports, although
most credit reporting companies charge a fee to provide a report.
Escrow: a special account set up by the lender
in which money is held to pay for taxes and insurance. Escrow
can also refer to a third party who carries out the instructions
of both the buyer and seller to handle the paperwork at the settlement.
Interest: the sum paid for borrowing money,
which pays the lender's costs of doing business.
Loan Origination Fee: the fee charged by a lender
to prepare all the documents associated with your mortgage.
Mortgage Insurance: an insurance
policy the borrower buys to protect the lender from non-payment
of the loan. Private mortgage insurance policies are usually required
if you make a down payment that is below 20% of the appraised
value of the home.
Principal: the amount of debt (not including
interest) left on a loan; also the face amount of the mortgage.
Title Insurance: an insurance
policy which insures you against errors in the title search,
essentially guaranteeing your and your lender's financial interest
in the property.
Underwriting: the process of deciding whether
to make a loan based on credit, employment, assets and other factors.
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