Do you recognize these mortgage terms? If you don’t, you should get to know them now. These terms might help you recognize risk in your mortgage loan terms and mortgage process. They will also be beneficial in helping you decide if you are getting the right loan for your situation.
ARM (Adjustable Rate Mortgage) – A mortgage containing an interest rate that, after an initial period, can be changed by the lender. The majority of these contracts handle rate changes by evaluating a pre-determined interest rate index over which the lender has no control.
Due-on-sale clause – A provision of a loan contract that stipulates when the property is sold any outstanding loan balance must be repaid. This prevents the seller from transferring responsibility for an existing mortgage to the home buyer.
Equity grabbing – An unethical type of predatory lending where the loan provider purposely attempts to put the borrower into a loan that will result in a relatively quick default, so that way the lender can “grab” the borrower’s equity.
Good faith estimate – The standard form from a lender that details any and all anticipated settlement charges that the borrower should expect to pay at closing. The lender is required to provide this document within three business days of their receipt of a loan application. Pay close attention to these details and make sure you understand completely all of the anticipated fees.
Negative amortization – An increase in the outstanding loan balance, resulting from multiple monthly payments that are less than the interest due. Watch out for this type of loan. This kind of mortgage loan is very risky.
Rate protection – Protection for a borrower against the danger that rates will rise between the time the borrower applies for a loan and the time the loan closes. This could help your loan be safer for you and more secure, long term.