Mortgages: Overview Flashcards
What is a mortgage?
A mortgage is a loan secured by real estate, allowing the borrower to finance a property while the lender holds a lien until the loan is repaid.
What is the principal in a mortgage?
The principal is the original amount borrowed in a mortgage loan before interest is applied.
What is an interest rate in the context of a mortgage?
An interest rate is the percentage charged by the lender as the cost for borrowing the principal amount.
What is a fixed-rate mortgage?
A fixed-rate mortgage is a loan where the interest rate remains the same throughout the loan’s term, providing predictable monthly payments.
What is an adjustable-rate mortgage (ARM)?
An adjustable-rate mortgage (ARM) is a loan where the interest rate may change periodically after an initial fixed period, reflecting market conditions.
What is the term of a mortgage?
The term of a mortgage is the duration over which the borrower agrees to repay the loan, commonly 15 or 30 years.
What is an amortization schedule?
An amortization schedule outlines the repayment of a loan over time, showing how each payment reduces the principal and covers interest.
What is a down payment?
A down payment is an upfront payment made by the borrower, usually a percentage of the property’s purchase price, which reduces the loan amount.
What is Private Mortgage Insurance (PMI)?
PMI is insurance required when the down payment is less than 20% of the property’s value, protecting the lender if the borrower defaults.
What is the Loan-to-Value (LTV) ratio?
The LTV ratio compares the amount of the loan to the appraised value of the property, indicating the level of risk for the lender.
What are points (discount points) in a mortgage?
Points are upfront fees paid by the borrower to reduce the interest rate on the mortgage, often equating to 1% of the loan amount per point.
What are closing costs in a mortgage transaction?
Closing costs are the fees and expenses paid when finalizing a mortgage, typically ranging from 2% to 5% of the loan amount.
What is an escrow account in relation to a mortgage?
An escrow account is used by lenders to collect and hold funds for property taxes and homeowners insurance, paid alongside the mortgage payment.
What is foreclosure?
Foreclosure is the legal process where the lender takes possession of the property if the borrower defaults on the mortgage loan.
What is a subprime mortgage?
A subprime mortgage is a loan offered to borrowers with poor credit history, usually at higher interest rates due to the increased risk.
