Definition of "Term"
The period used to calculate the monthly mortgage payment. The term is usually but not always the same as the maturity, which is the period over which the loan balance must be paid in full. On a seven-year balloon loan, for example, the maturity is seven years but the term in most cases is 30 years. Impact on Monthly Payment: The longer the term, the lower the mortgage payment but the slower the growth of equity. Borrowers who want to make their payments as small as possible select the longest term available. The reduction in payment from lengthening the term, however, becomes less and less effective as the term gets longer. Shorter term versus extra payments: A borrower can always shorten the realized term of a mortgage by making extra payments. For example, a borrower who selects a 15-year loan but wants to pay it off in 10 years can make an extra payment every month to bring the payment to what it would be on a 10. Assuming the interest rate is the same, the outcome is the same. An investment in a shorter-term mortgage is a little different than most other investments. Typically, an investment consists of a lump sum paid out at the beginning and the return is a series of payments received over time. This is the way it is, for example, with an investment in a deposit or bond. By contrast, when you invest in a shorter-term mortgage, your investment is a series of payments equal to the difference between the monthly payment at the shorter term and the payment at a longer term. And the return is a lump sum, equal to the larger proceeds you receive at time of sale because of the smaller loan balance that must be repaid at the end of the period. Staying on Schedule When Refinancing: Some borrowers want to refinance while staying on the same amortization schedule. For example, they took out a mortgage seven years ago that has 23 years to run and they want to stay on that schedule, rather than start with a new 30-year schedule. Lenders won't ordinarily make a 23-year loan. The best option, therefore, is to refinance for 30 years, but increase the payment by the exact amount required to amortize over 23 or any other period you wish.
Popular Mortgage Terms
A documentation option where the applicant's income is disclosed and verified but not used in qualifying the borrower. The conventional maximum ratios of expense to income are not ...
Deceptive practices used by mortgage loan providers and other participants in the mortgage process. Scams by Loan Providers: Lenders and mortgage brokers may employ a number of tricks ...
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Allowing the interest rate and points to vary with changes in market conditions, as opposed to 'locking' them. Floating may be mandatory until the lender's lock requirements have been met. ...
The sum of the monthly mortgage payment, hazard insurance, property taxes, and homeowner association fees. Housing expense is sometimes referred to as PITI, standing for principal, ...
The interest rate used to calculate the mortgage payment. The interest rate and the payment rate are often the same, but they need not be. They must be the same if the payment is fully ...
Same as term Points: An upfront cash payment required by the lender as part of the charge for the loan, expressed as a percent of the loan amount; e.g., '3 points' means a charge equal to ...
A mortgage on which the payment rises by a constant percent for a specified number of periods, after which it becomes fully-amortizing. ...
A lenders requirements regarding how information about income and assets must be provided by the applicant and how it will be used by the lender. The following categories have evolved in ...
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