Often the biggest battle with anything we face is understanding the terms and exact meanings behind the elusive phrases big companies use to get over on us. Especially in the Mortgage field, you do yourself a great dis-service not knowing exactly what the lenders are talking about. You could find yourself into a contract that is completely lopsided for the lender, but maybe you didn't know the difference between the AAPR or the APR. You could have cut down on half of your closing cost if you would just understand what it all means.

Here are the basic terms any one needs to know before you do any more research or definitely before you sign down on a loan and sign half your life away. I mean before you can even begin to expand your knowledge in the field of borrowing/ lending, you will have to understand theses terms and concepts.

1.) APR - Annual percentage rate. This reflects the costs of borrowing. This is also known as the advertised rate or the headline rate. This rate does not reflect all cost affiliated with borrowing.

-Adjustable rate mortgage (ARM)-mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the re-negotiable rate mortgage,

2.) AAPR- Annualised Average Percentage Rate- This is the true rate. It includes: Nominal interest, All on going and upfront fees over the seven year period that most loans are open for.

Amortization-loan payment by equal periodic payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

3.) Arrears- An overdue amount of payment or interest that has yet to be paid. However this money is not exempt from further interest charges and penalties.

Assumption-agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply.

4.) Closing Costs- The cost associated with obtaining a loan or purchasing some property. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount

5.) Collateral- Collateral is used to secure a loan with property other than money usually. However you can obtain some secured loans on money itself. In cases of property the lender would lose the property due to non payment.

6.)Credit History- Your credit history is your activity both positve and negative from over the past seven years.

7.) Credit Score - Your score is the reflection of the three credit unions, reported by Experian, Equifax, Trans Union

Equity-The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.

8.) Mortgage Insurance- This is insurance on you paid by you but for the lender. This is usually incorporated into your payments but is payable to the lender.

Origination Fee- The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.

Prepayment - A privilege in a mortgage permitting the borrower to make payments in advance of their due date.  

Prepayment Penalty-Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) Yet should always be made very clear in every contract.

Reverse Annuity Mortgage- A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of mortgage."

Second Mortgage- A mortgage made subsequent to another mortgage and subordinate to the first one.

 

Sweat Equity- Equity created by a purchaser performing work on a property being purchased.

9.)True Rate- The true rate Is the AAPR. It is the true rate because it reflects all of the total costs and fees associated with the total loan over the total time.

Truth-In-Lending- A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.

With understanding the simple mortgage terms one should also learn basic strategies of a bad lender in order to avoid being used and entering into a contract  you can't afford.There are many horrible lenders that will try to hurt you financially buy getting you a mortgage for terms and conditions that are very high and that will ruin you financially. Here are some things to watch out for and avoid when choosing a mortgage lender. Bad mortgage lenders will try to do the following:

1. An  investor tells you that they are your only chance of getting a mortgage or owning a home.  Take your time to shop around and compare prices and houses.
2. The house you are buying costs a lot more than other homes in the neighborhood, but isn’t any bigger or better.
3. You are asked to sign a sales contract or mortgage documents that are blank or that contain information which is not true.
4. You are told that the Federal Housing Administration insurance protects you against property defects or loan fraud - it does not!!!!
5. The cost or mortgage terms at closing are not what you agreed to.
6. You are told that getting a new mortgage or second mortgage can solve your credit or money problems.
7. You are told that you can only get a good deal on a home improvement if you finance it with a particular lender.

How they Do It!!

1. Sell properties for much more than they are worth using false appraisals.
2. Encourage mortgage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan.
3. Knowingly lend more mortgage money than a borrower can afford to repay.
4. Charge high interest rates to borrowers based on their race or national origin and not on their credit history.
5. Charge fees for unnecessary or nonexistent products and services.
6. Pressure mortgage borrowers to accept higher-risk loans such as balloon loans, interest only payments, and steep pre-payment penalties.
7. Target vulnerable borrowers to cash-out refinances offers when they know borrowers are in need of cash due to medical, unemployment or debt problems.
8. “Strip” homeowners’ equity from their homes by convincing them to mortgage again and again when there is no benefit to the borrower.
9. Use high pressure sales tactics to sell home improvements and then finance them at high interest rates.

Everyone has been hit hard by the Housing crisis. I won't be able to cure the whole market with this hub but maybe you will be that much wiser about understanding mortgage terms. So you too can begin to face this housing crisis..