RIP Knowing These Common Mortgage Acronyms

If there’s one thing mortgage lenders love, it’s an acronym. From ARMs to PMI to LTV, it’s easy to get lost in a sea of jargon and miss the important meaning behind the language. Since I consider you one of my BFFs, I’ve outlined five common mortgage acronyms below:

ARM – Adjustable Rate Mortgage

Adjustable-rate mortgages have monthly payments that can move up and down as interest rates fluctuate. Most have an initial fixed-rate period where the rate doesn’t change followed by a longer period where the rate changes at preset intervals. So, don’t panic if a lender tells you they’re going to get rid of your arm in seven years. They’re likely only referring to the possibility of refinancing your mortgage into a fixed rate after your initial period.

PMI – Private Mortgage Insurance

Private Mortgage Insurance is an insurance policy to protect a lender against loss if a borrower defaults. PMI is a percentage of the loan amount, so the more you borrow, the more PMI you’ll pay. Of course, if you have a 20% or more down payment, you don’t have to pay PMI at all.

LTV – Loan-to-Value

The loan-to-value ratio is calculated as the amount of the mortgage divided by the appraised value of the property, expressed as a percentage. For example, if you borrow $80,000 to purchase a home appraised at $100,000, you would have an LTV ratio of 80% (80,000/100,000). In general, the higher the LTV, the riskier the loan is for the lender.

Fannie Mae – FNMA – The Federal National Mortgage Association

I don’t know about you, but whenever I hear Fannie Mae, I look around for Mint Meltaways. Well, it turns out there are two Fannie Maes, and this one never has any candy. Mortgage Fannie Mae has a mission of bringing liquidity, stability and affordability to the U.S. housing market. It does this by purchasing mortgages from banks and then selling them through a process called securitizing. Once the mortgages are purchased, banks are freed up to make more loans. It’s a beautiful circle of lending, and some say that’s better than chocolate.

Freddie Mac – FHLMC – Federal Home Loan Mortgage Corporation

Freddie Mac essentially offers the same benefits as Fannie Mae. They both play the same important role in our economy, so picking a favorite isn’t necessary.

I hope this knowledge leaves you more confident the next time you speak to a loan officer. Better yet, you can find a lender that carefully explains the mortgage process and doesn’t leave you feeling confused. Give your brain a break from all this research and contact United Home Loans below or at 708-531-8388.

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