Mortgage Terminology
It’s okay that you’re not a mortgage expert: that’s our job. But throughout your experience, you may come across some mortgage terminology that you need to understand a little better. We offer a comprehensive glossary on our website, but we thought it would be fun to pull a few concepts and give you some easy ways to understand and remember what they mean. Don’t worry, though; there won’t be a quiz at the end.
Amortization
The term “amortized” is often thrown around without much care for whether or not it’s understood. Amortization means a loan is paid off through a series of fixed amounts, and it’s paid fully at the end of the loan schedule. Monthly payments are listed; a portion of each payment goes toward interest while the rest is applied to the principal.
You can check out the GoPrime Mortgage of West Asheville online mortgage calculator to learn more, but we also encourage you to reach out to us directly.
Debt Ratio
Also called Debt-to-Income Ratio, this is the number by which we can determine many things about the kind of loan that will work for you. It consists of your monthly debt payments divided by gross monthly income. Way back in 2016, we talked a little about debt ratio on our blog.
In that blog post, we discussed the ideal debt-to-income ratio and the magic number of 43%. Before buying a home, you should work on getting your debt ratio below 43%. That will help you get excellent terms for your home loan.
Maturity
Throughout the loan process, and as you make your mortgage payments, you’ll hear the use of the term “Maturity.” While it sounds complex, it just refers to the date that your mortgage balance is due. The maturity date will depend on many factors, including your specific terms and how much principal you’ve already paid.
Maturity is also sometimes referred to as the renewal date. With some specific loans, homeowners can opt to renew their mortgage if given an offer by the existing lender. Or they can refinance their mortgage at this time. Or, of course, you can pay it off.
ARM
When it comes to mortgage terminology, an ARM is not a body part. It stands for Adjustable Rate Mortgage, and they are a typical mortgage process. The interest rate that is applied to the outstanding balance will vary throughout the life of the loan. For an established period, the initial interest rate is fixed. After that time frame, the rate will change, sometimes monthly or yearly.
You may also hear a couple of other terms concerning an ARM:
- Interest rate ceiling: the maximum interest rate allowed
- Interest rate floor: the minimum rate designed to cover costs associated with the loan
Do you want to understand the mortgage process better and get preapproved for your next home purchase? Call the team at GoPrime Mortgage today. GoPrime Mortgage in West Asheville is here to help. Call us today at 828-348-1907 –Zachery Adam at GoPrime Mortgage in West Asheville.
