In this part of our series on “Mortgage Terms and What They Mean”, we are going to look at some interesting terms used by people in the mortgaging and home finance industry. Remember, an informed decision is always the best way to make a decision. You can check out the first part of this series here.

Homeowners’ insurance: This is a type of insurance used by homeowners to cover the cost of damages or losses suffered in a home. Sometimes, it is paid out of the monthly mortgage payments.

HELOC: This is an acronym for Home Equity Line of Credit. It is a second mortgage that allows the borrower to get cash from the equity of the home.

Interest-only mortgage: As the name signifies, this is a mortgage where the monthly payments consist of the interest only for a period of time. During this time, the loan balance remains the same.

Lien: A lien refers to a legal claim against a property that must be paid off when the property is sold. Usually, the lien is created when you use your home as collateral after borrowing money. Consequently, the proceeds from the sale of a property will first go towards the payment of the lien.

Loan-to-value ratio: This is the amount of loan taken divided by the appraised value of the property. It is usually expressed as a percentage. For example, if you have a $120,000 mortgage against a $200,000 home, the LTV is 60%.

Mortgage: A mortgage is simply a legal document used to hold onto the title to a property as security for repayment of a debt.

Mortgage pre-approval: This refers to a process whereby the person seeking a mortgage applies to a mortgage lender for initial approval for a home finance loan. When a mortgage pre-approval is given, the borrower has issued a pre-approval letter that signifies to sellers that a lender is willing to provide the buyer some housing/home finance in the form of a loan.

Mortgage pre-qualification: This is a process used to determine the capacity of a borrower to get a mortgage. The borrower submits some financial information to a mortgage lender which allows the lender to give a rough estimate of how much housing/home finance they may qualify for.

Origination fee: This is a fee charged by the mortgage lender for processing the mortgage.

Owner-occupied: A home occupied by a borrower as a primary residence as opposed to a rental property. The distinction tends to affect the eligibility for the home finance as well as the mortgage rates.

PITI: Principal, Interest, Taxes, and Insurance — these are the four elements that usually make up a monthly mortgage payment.

Points: This is a synonym for one percent and it is usually of the principal loan amount. For instance, to pay an origination fee of two points on a $100,000 loan, for example, you pay $2,000 to the lender.

Principal: This is the portion of the loan that represents the value of the home. Unlike the interest, It’s also the portion of the monthly home finance payment that decreases the amount due on the mortgage.

Private mortgage insurance: This is a fee that acts as insurance for lenders when a borrower puts down less than 20%. It is also known as a PMI.

Rate lock: This is when a mortgage lender agrees to guarantee a potential borrower a particular interest rate for a period of time.

Realtor: This is a very specific term for a real estate broker or agent who has an active membership in the National Association of Realtors. It must be noted that not all brokers or agents are Realtors.

Reverse mortgage: This is an instrument used by older homeowners who are 62 years and older to convert the equity in their home or homes into a monthly stream of income.

Settlement costs: This is merely a mortgage or home finance term for closing costs.

Survey: This is a measurement-based description of land prepared by a registered land surveyor. A survey determines exactly where the boundary lines of a piece of property are, plus the location and dimensions of any improvements.

Title: A title is simply the evidence of ownership or the right to ownership of property.

Underwriting: This refers to the process of analysing a loan application. It allows the lender to determine the amount of risk involved in making the loan. The underwriting includes a review of the borrowers’ credit history, the value of the property and a determination of the borrowers’ ability to pay back the loan.

Warranty Deed: A legal document that guarantees that the seller is the true and actual owner of the property. It determines the right of the seller to sell the property.

Yield curve: A yield curve is a graph that compares long-term lending rates to short-term rates.

Zero-down mortgage: A loan that finances 100% of the purchase price.

So there you have it! A list of mortgage terms in alphabetical order that are often used by people in the mortgage industry. Read more about mortgage providers in Ghana here and good luck on your search for a new home!