Want to Refinance? Understand the Terms

By Gabriel Traverso
Mortgage Credit Problems Columnist

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Homeowners with bad credit sometimes feel overwhelmed during the mortgage refinance process. It doesn't take much to feel like you're in over your head if you don't understand the terms used in the mortgage business. This glossary should help.

Bad Credit Refinance: A Glossary of Mortgage Terms

Here is a brief explanation of some of the most commonly used mortgage terms:
  • Adjustable Rate Mortgages (ARMs): This is a variable rate home loan based on a financial index--your payments go up or down as the rate fluctuates.
  • Annual Percentage Rate (APR): This is the cost of your loan in a yearly interest rate. It includes the interest rate on your loan as well as the points or fees you might be paying.
  • Conventional Loans: Any home mortgage that isn't insured or guaranteed by a federal agency, such as the FHA.
  • Escrow: When a home is bought or sold the money is given to a neutral third party, like an escrow company or sometimes a lawyer, who holds the money until all paperwork is completed and the transaction has closed.
  • Fixed-rate Loans: A mortgage where the interest rate is fixed over the entire duration of the loan. These mortgages are usually offered in 15 or 30-year terms.
  • Interest Rate: This is the rate charged by the lender for advancing you the money for your home loan. It is determined by rates in financial markets, your credit profile, and how good a deal you can negotiate with your mortgage lender.
  • Loan Origination Fees: Fees charged by the lender or mortgage broker for the processing of the loan. These fees may be negotiable.
  • Lock-in: This is a written agreement guaranteeing a specific interest rate or terms on a loan providing it is closed within a certain timeframe, such as 30 or 60 days. Some loans offer a "float down" which means that if rates go lower than what you've locked in you still get the lower rate.
  • Points: These are fees the lenders charges for the loan and are included in the closing costs. One point equals one percentage of the loan amount.
  • Private Mortgage Insurance: PMI is usually required when you are borrowing more than 80% of the value of the home.

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