Definition of "Term"
The period used to calculate the monthly mortgage payment. The term is usually but not always the same as the maturity, which is the period over which the loan balance must be paid in full. On a seven-year balloon loan, for example, the maturity is seven years but the term in most cases is 30 years. Impact on Monthly Payment: The longer the term, the lower the mortgage payment but the slower the growth of equity. Borrowers who want to make their payments as small as possible select the longest term available. The reduction in payment from lengthening the term, however, becomes less and less effective as the term gets longer. Shorter term versus extra payments: A borrower can always shorten the realized term of a mortgage by making extra payments. For example, a borrower who selects a 15-year loan but wants to pay it off in 10 years can make an extra payment every month to bring the payment to what it would be on a 10. Assuming the interest rate is the same, the outcome is the same. An investment in a shorter-term mortgage is a little different than most other investments. Typically, an investment consists of a lump sum paid out at the beginning and the return is a series of payments received over time. This is the way it is, for example, with an investment in a deposit or bond. By contrast, when you invest in a shorter-term mortgage, your investment is a series of payments equal to the difference between the monthly payment at the shorter term and the payment at a longer term. And the return is a lump sum, equal to the larger proceeds you receive at time of sale because of the smaller loan balance that must be repaid at the end of the period. Staying on Schedule When Refinancing: Some borrowers want to refinance while staying on the same amortization schedule. For example, they took out a mortgage seven years ago that has 23 years to run and they want to stay on that schedule, rather than start with a new 30-year schedule. Lenders won't ordinarily make a 23-year loan. The best option, therefore, is to refinance for 30 years, but increase the payment by the exact amount required to amortize over 23 or any other period you wish.
Popular Mortgage Terms
The standards imposed by lenders in determining whether a borrower can be approved for a loan. These standards are more comprehensive than qualification requirements in that they include ...
An agreement between a mortgage borrower in distress and the lender that allows the borrower to sell the house and remit the proceeds to the lender. A short sale is an alternative to ...
Same as term Negative Points: Points paid by a lender for a loan with a rate above the rate on a zero point loan. For example, a lender might quote the following prices: 8%/0 points, ...
The date on which the closing occurs. On a purchase transaction, there is no financial advantage to the buyer/borrower in closing on any day of the month, as compared to any other day. ...
The sum of all interest payments to date or over the life of the loan. This is an incomplete measure of the cost of credit to the borrower because it does not include upfront cash ...
A lender who specializes in lending to sub-prime borrowers. ...
An agreement by the lender not to exercise the legal right to foreclose in exchange for an agreement by the borrower to a payment plan that will cure the borrowers delinquency. ...
An option attached to a mortgage, which allows the borrower to pay only the interest for some period. A mortgage is 'interest only' if the monthly mortgage payment does not include any ...
A provision of a loan contract stipulating that if the property is sold the loan balance must be repaid. A mortgage containing a due-on-sale clause is not assumable. This prevents a home ...
Have a question or comment?
We're here to help.