Understanding Home Loan TerminologyBy Emily Kerr
Loan page Columnist
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Before entering into a mortgage or even choosing the type of home loan right for you, first-time home buyers must do their homework. But when you start your homework, you find a brand new language you're expected to know--and no explanation.
Annual Membership FeeLike a credit card membership fee, this is a fee charged for having a line of credit available, whether or not it is used.
Annual Percentage Rate (APR)Cost of credit on a yearly basis, expressed as a percentage.
Balloon PaymentSome loans are interest-only, or the payments on the principal aren't enough to pay the principal off during the loan term. A balloon payment is a lump-sum payment required when a loan term ends, to pay off the principal.
CapFor variable rate loans, this is a limit on how much the variable rate may increase during the life of the loan.
Closing CostsAdministrative fees paid when the loan closes, including attorneys fees; fees for preparing and filing a mortgage; title search fees; taxes; and insurance.
Credit LimitUnder a home equity line of credit, home owners can borrow against their equity. A credit limit is the maximum amount that may be borrowed.
EquityThis is the difference between the appraised value of your home and the amount due on the mortgage.
IndexPublished rate used as a base for interest rates charged on home equity lines and used by lenders to change rates.
Interest RateA periodic charge assessed for use of credit.
MarginThe number of percentage points the lender adds to the index rate to determine the annual percentage rate.
PointsOne point is equal to one percent of the amount of a credit line. Points are paid at closing.
Variable RateThis is an interest rate that changes when the index changes. Monthly mortgage payments may change accordingly.
Sources:The Federal Reserve
About the AuthorEmily Kerr is a freelance writer with more than 350 articles in print. She writes about topics from home construction to home loans, technology to education, people to pets, and everything in between.
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