There are certain key terminologies used in mortgages that every home buyer should know. If you are taking out a mortgage, it’s essential that you understand the terms used. Otherwise, you could find yourself in a financial bind due to your lack of knowledge.
In November, we discussed 10 mortgage terms all homebuyers should know before purchasing a home in Boston. We have received many follow- up questions, so here are 9 more terms you should know:
Amortization.
Amortization is paying off a loan at regular intervals, typically over a planned period of time. When you amortize a mortgage, the balance is reduced over time. The mortgage payments are being applied to the interest charges on the mortgage, as well as the principal amount.
Appraisal.
Appraisal is the estimation of value of a property based on comparable real estate sales and other factors in the area by an authorized individual. Usually, lenders order appraisals when underwriting the loan. The appraised value of a home is important to lenders because the property serves as a collateral to secure the mortgage. Appraisal fees are generally charged to the loan.
Balloon Payment.
A Balloon payment occurs when a homeowner pays a large lump- sum amount at the end of their loan. A mortgage that requires a balloon payment is generally intended to shorten the repayment period and reduce the monthly amortization payments. Sometimes investors that are completing construction will use this financial tool so the balloon payment will come due when the property is sold.
Closing Costs.
Closing costs are the charges above and beyond the property purchase price that the buyer is responsible for to complete the real estate transaction. When you pay your closing costs, you are paying to finalize the underwriting costs of the mortgage – such as loan origination fees, title search, title insurance, taxes, recording fees and more. Since the term closing costs can include a wide variety of costs and fees, you should ask your loan…