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
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Requirements stipulated by the lender that the ratio of housing expense to borrower income and the ratio of housing expense plus other debt service to borrower income cannot exceed ...
On an ARM, the assumption that the interest rate rises to the maximum extent permitted by the loan contract. ...
Acceleration Clause is a contractual provision inserted in a mortgage, a bond, a deed of trust or other credit vehicles, that gives the lender the right to demand repayment of the ...
A bundle of mortgage characteristics that lenders view as comprising a distinct category. The characteristics used include whether it is an FRM, ARM, or Balloon, the term, the initial ...
The sum of all interest payments to date or over the life of the loan. This is not a good measure of the cost of credit to the borrower because it does not include upfront cash payments and ...
The most recently published value of the index used to adjust the interest rate on an indexed ARM. ...
A payment made after the grace period stipulated in the note, usually 10-15 days. ...
Advice on where to go to get a mortgage. A borrower can always select a loan provider by throwing a dart at the Yellow Pages. A referral is of value if it raises the probability of a ...
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