Mortgage brokers and mortgage consultants spend a lot of time clarifying and explaining the processes and practices used by lenders. All professions are wrapped in esoteric phrases and double talk. The mortgage industry is no different. Part of what a mortgage broker does is act as an intermediary between the borrower and the lender. We have compiled some basic terms that are important to understand.

Variable Rate Mortgage: An adjustable rate mortgage, also known as an adjustable rate mortgage, is one in which the interest rate fluctuates over time. The rate may be locked in for short periods before being readjusted based on current market conditions. The adjustment will always reflect the cost to the lender of continually having to borrow in the credit markets. If you’re unsure about the process, a mortgage broker or consultant can offer unbiased advice.

Fixed Rate Mortgage: A fixed-rate mortgage is simply one in which the interest rate on the loan remains stable throughout the term. The advantage of having a fixed rate mortgage is that your payments do not fluctuate. Just as you won’t be able to benefit from lower interest rates during good times, you won’t have to deal with higher interest rates during bad times. In that sense, a fixed rate mortgage can be less risky than an adjustable rate mortgage. Your lender or mortgage broker can advise you on the best option for your situation.

Amortization: In the context of the mortgage market, amortization describes the payment of debt over a period of time in regular installments. Each time the homeowner makes a payment, a portion of that payment is applied toward the principal loan reduction, while the remainder is used to pay interest. As long as the payment stays current and the homeowner doesn’t fall behind, the principal on the loan decreases over the years. The schedule for this decrease is the amortization schedule.

Property appraisal: Property appraisal must be done by a certified appraiser. When carrying out an appraisal, the condition of the house is valued. Prices obtained for similar properties in the area are then considered. Through this method of comparing comparable sales, the appraiser arrives at what is called a fair market price. Along with your creditworthiness, the value of your home will affect the interest rate you receive from your lender.

Negative Equity: Negative equity is something that applies when the housing market crashes during the life of a mortgage. If the value of the home falls below a certain point, such that the amount owed to the lender exceeds the current value of the home, this is known as negative equity. In the worst scenarios, this leads to processes such as debt renegotiation and/or mortgage default. Mortgage brokers or other financial advisors can assess your situation and advise you on the smartest strategy.

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