Getting a home equity loan is a bit different from applying for a first mortgage. Understanding the following home equity terms can help your application go more smoothly.
• Appraisal: A written analysis of the estimated value of a property, as prepared by a qualified appraiser. The lender uses this in determining your qualification for a loan.
• Appreciation: The increase in value of a home as a result of market conditions. The appreciated value of your home is the amount it is now worth.
• Break-even point: The point at which a homeowner will begin realizing savings after refinancing a mortgage. This is when it makes since to refinance.
• Cash-out refinancing: Refinancing a mortgage for more than you currently owe and using the cash for another purpose. It is often used for paying off debt or financing home renovations.
• Closing costs: This home equity term refers to the money paid at closing to the lender. It includes a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The closing costs are usually about 2 percent to 6 percent of the mortgage amount.
• Credit report: A report of your credit history that a lender uses to determine your creditworthiness. It shows your history of borrowing and repaying money.
• Equity: The difference between the fair market value of your home and the current amount left on your mortgage. It is also referred to as the owner’s interest.
• Home equity loan: A second mortgage secured against the equity in your home. It allows you to tap into your built-up equity and obtain a lower interest rate that you would normally get on an unsecured loan.
• Home equity line of credit: A revolving line of credit that is secured against the equity in your home. It enables you to withdraw money, as you need it. Because it is secured against your home, it allows you to get a lower interest rate than you would normally get on an unsecured credit line.
• Interest rate: The annual interest on a loan, based on a percentage of 100. The lower your interest rate, the lower your monthly payment.
• Lock-in: A guarantee from a lender that you will be granted a certain interest rate for a specific time period, such as thirty days prior to closing.
• Mortgage refinancing: When you pay off one mortgage with the proceeds from another, you are refinancing. You may do this to get a better interest rate, change your mortgage product, change the terms of your mortgage, get money to renovate your home, or to pay off debt.
• Origination fee: The fee charged by a lender for processing a loan.
• Pre-approval: Getting pre-approved for a mortgage requires that you complete a mortgage application and supply a lender with all the necessary documentation to check your financial background and credit rating. You will then be told the exact mortgage amount for which you are approved.
• Pre-qualification: Occurs when a lender estimates what size loan, usually a mortgage, you can afford. A prequalification estimate is non-binding.
• Principal: The amount of debt, not counting interest, left on a loan.
• Term: The time period for your loan.
• Title: The document that shows ownership of the property.
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