Home Loan Basic Terms

September 25, 2009 | Posted by Staff

If you are thinking about refinancing your home mortgage or find yourself behind in payments it is important you understand the basics of how mortgages and home financing works. A home mortgage is one of the most important contracts you will enter into as it likely represents a significant portion of your income for a long time to come. Unless you are able to pay a large amount of a home price upfront, which is not a reality for many people, the specifics regarding your mortgage contract will have a significant effect on your financial situation down the road.

The first key to securing a mortgage contract you can afford is understanding exactly what a mortgage is. Below are several basic terms to help get you started if you have not already educated yourself on home financing.

Investment Property - this is the term for a property that is not the primary residence or home of the owner but what bought for expected financial gain either due to increased property value over time, to generate income through rents, or for tax benefit.

Lender Placed Insurance - insurance put on the property by the lender or mortgage company as a means to protect their investment

Mortgage Insurance -  this refers to insurance that provides protection for the lender in the event that the borrower defaults on a loan. Mortgage insurance is often mandatory on loan where the down payment represents less than 20% of the total price of the property.

Mortgage – this is the legal contract that sets up the borrowers obligation to repay their lender money used for purchase of a house or property

Refinance – this is the process of taking out a second mortgage or loan then using the proceeds to pay of the initial obligation, normally done to secure different loan terms

Repayment Plan – this term is used to describe the general process of paying back loan balances and accrued interest through regular payments over time

Servicer – this is a company that works in the serve of the bank or mortgage company and performs management of the loans in their portfolio including billing and collecting payments and fees, administering insurance and tax paymennts managing escrow accounts, customer relations, and foreclosure when situations warrant it

Title – this is the name of the document that a person owns a real estate property

Work Out -this is a method to rework or restructure an a loan or mortgage agreement to avoid foreclosure. There are several ways to do this including forbearance, loan modification, and short sale.

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