Home equity loan

Mortgage loans have their own vocabulary, which can seem imprenetrable to a first time homebuyer. While this list is by no means exhaustive, it gives the most common mortgage terms you are likely to run into as you familiarize yourself with mortgage loans.

* Amortizing: “Amortizing” means that the loan is fully paid at the end of the loan term, and the payments are designed to be roughly the same amount for the duration of the loan. Each of the payments of an amortizing loan cover both part of the principal and all of the accrued interest.

* Non amortizing: A non amortizing loan’s payments do not pay off the loan gradually. For instance, a popular type of non amortizing mortgage called a balloon mortgage requires payments that cover only the accrued interest, or may even require that only part of the accrued interest is paid. At the end of the balloon mortgage’s term, the full sum of the mortgage is due, usually as a lump sum.

* Variable rate: The interest rates for mortgage loans with variable interest rates rise and fall with the market. Variable rate loans are good for periods in which interest rates are high, but are expected to drop. Many variable rate loans have a grace period during which the homeowner can convert from a variable rate to a fixed rate loan in order to take permanent advantage of a dip in interest rates.

* Fixed rate: A fixed rate does not change over the life of the loan. Mortgage loans with fixed rates have payments of equal amounts from the beginning to the end of the term of the loan. Fixed rate mortgages are best for when the prevailing interest rates are low and are expected to rise shortly. Fixed rate loans allow homeowners to lock in low interest rates during periods when markets are favorable, then enjoy the low interest rates when the prevailing rates rise.

* Points: Fees you pay for taking out a loan. One point is worth 1% of the value of the mortgage loan. Fees for legitimate mortgage loans should be under 5 points.

* Yield spread premium (YSP): A yield spread premium is a sum the lender pays the mortgage agent for convincing a client to sign a mortgage with a much higher interest rate than the client would normally have received. Legitimate lenders never append yield spread premiums, so if your contract contains a yield spread premium, the lender is trying to scam you.