Mortgage Lenders in the US States Key Terms

Learn about a few of the key terms that you'll come across when working with mortgage lenders

By Jason Wood

Mortgage lenders provide the capital that many people need to purchase a residential or commercial property. The mortgage lenders make money by charging interest on the principal while the borrower gets to live in the home or set up their business on the location.

Because mortgage lenders write the contracts, there is a host of terms that they use frequently which might not be in the vocabulary of the average American. Here are some terms frequently used by mortgage lenders in the US along with some quality resources.

Adjustable rate mortgage (ARM)

An adjustable rate mortgage, or ARM, is a mortgage that has one interest rate for a set period of time (usually anywhere from one to ten years) and then adjusts to a higher rate. These lower rates are meant to give the borrower a chance to get into the property and plan ahead for the period when the interest rate adjusts.
Try: Visit the Mortgage Professor for further information on an adjustable rate mortgage and all of its components.

Balloon mortgage

A balloon mortgage refers to a mortgage that has a series of smaller monthly payments with a large balloon payment due to the lender at the end of the term. A balloon mortgage is popular for borrowers who wish to pay less along the life of the loan and be responsible for a larger lump sum payment at the end. Because many people move or obtain new mortgages before the end of a 15 or 30-year term, the lump sum never has to be paid and might allow newer borrowers into the market.
Try: Visit the website of the company For Sale By Owner America for a further discussion of a balloon mortgage and how the terms are laid out.

Fixed rate loan

A fixed rate loan refers to a loan in which the borrower pays the same interest rate from the start to the end of the loan. Securing a fixed rate loan is popular if a borrower knows that they will stay in their home or business for a number of years, or if interest rates are low and the borrower doesn't believe they will go lower.
Try: Visit the website for Mortgage-X for further information on fixed rate loans.

Debt to income ratio

The debt to income ratio refers to the amount of debt the borrower has compared to their amount of gross income. Usually this number needs to be verified to the lender by pay stubs. The lower the number, the more favorable a borrower is in the eyes of the lender.
Try: Visit Bank Rate.com for further discussion on the debt to income ratio.

Closing costs

Closing costs refer to the additional payments and fees that are required to complete the purchase of a home or business property. Closing costs include things such as payment to the escrow company, payment to the county to record the purchase, a deposit against future taxes due, and more. Closing costs are typically between 1% and 5% of the property purchase price.
Try: Visit Quicken Loans for a further discussion on closing costs and all that they entail.

Annual percentage rate, APR

The annual percentage rate, or APR, refers to the actual amount of interest, inclusive of fees, that a borrower is paying on the principal of their loan. For instance, if a borrower has a 5% interest rate, but is buying down points at the closing, their actual APR might really be 5.125%.
Try: Visit the website for Charter Financial to find further information on how APR is calculated.