Prior to submitting a mortgage loan application, borrowers must be conversant with the buying method, particular mortgage loan terms and their explanations. Following are five mortgage terms with their explanations that everybody must know:

Settlement cost

Closing costs or settlement costs are the fees that are charged from the borrower. They have to be paid in total at the time of closing and are usually 3%-5% of the sales price. Settlement costs are categorized into three types: third party costs, lender costs and other fees. Lender costs comprise underwriting fees, points or loan origination fees, courier fees, document preparation fees and so on. Third party fees comprise appraisal fees, credit report fees, as well as property inspection fees. Other settlement fees involve per diem interest, government charges and hazard insurance. Within three days of sanctioning the loan, lenders are bound to furnish the borrowers with a Good Faith Estimate that includes estimated settlement fees. The borrower, home seller or lender can pay the settlement costs.

Amortization

Amortization is principal repayment. Mortgages include principal payments and interest payments. During the initial phase of a mortgage loan, the interest outstanding significantly surpasses the outstanding principal. As the loan becomes due for repayment, the interest and principal payments switch in which the outstanding principal is more than the interest due.

Accelerated Clause

Accelerated clause is an aspect that empowers the lenders to claim repayment of the whole loan balance if the borrower does a breach of contract. Breach of loan terms might consist of constant late payments, furnishing fake details on loan documents and misrepresentation of the borrower.

Grace Period

Ownership of real estate carries particular advantages like permissible late payments free from penalties. Every mortgage loan includes a grace period. The tenure differs. Nevertheless, maximum lenders limit the grace period at 10-15 days.

Loan Lock