The Edmond Sun

Business

August 28, 2006

The language of home loans

EDMOND — Understanding the terminology mortgage lenders use when talking with their customers can be as difficult as understanding how certain current events create fluctuations in the stock market. In an effort to make readers better mortgage shoppers, I offer the following brief glossary of mortgage terms.

• Adjustable-rate loans, also known as ARM or variable-rate loans, usually offer a lower initial interest rate than fixed-rate loans. The interest rate fluctuates during the life of the loan based on market conditions, but the loan agreement generally sets maximum and minimum rates. When interest rates rise, generally, so do your loan payments; and when interest rates fall, your monthly payments may be lowered, however, usually never below your beginning rate.

• Annual percentage rate is the cost of securing the credit expressed as a yearly rate. The APR includes the interest rate, points, broker fees and certain other credit charges the borrower is required to pay. For mortgages, this rate is reported on the Truth in Lending form.

• Conventional loans are mortgage loans other than those insured or guaranteed by a government agency such as the Federal Housing Administration, the Veterans Administration or the Rural Development Services. These are among the most popular and most-used types of mortgages.

• Escrow is the act of holding monies or documents by a neutral third party prior to closing. In Oklahoma, this service is usually provided by a title company. In some cases, where only earnest monies are involved, the real estate broker can hold these items. The most common type of escrow in this state is an account held by the lender, or loan servicer, into which a homeowner pays money for the future payment of taxes and homeowners’ insurance.

• Fixed-rate loans generally have repayment terms of 10, 15, 20 or 30 years. Both the interest rate and the monthly payments for principal and interest stay the same during the life of the loan.

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