Mortgage Terms You Should Know

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Acceleration Clause
If you miss a monthly payment, an acceleration clause allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire outstanding balance of the loan.

Acceleration Clause
Assumability
Assuming a mortgage is simply taking the loan over from the holder (seller) and becoming liable for the repayment.

Buydown
The Buydown mortgage is one where the seller and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the lower initial payment and interest rate make this kind of loan easier to qualify, the payments may increase when the subsidy expires.

Closing Costs/Settlement Costs/Escrow
Closing costs are the costs associated with settlement, the meeting where the buyer and seller (or their agents) sit down to fill out the papers and make the exchanges that allow the property to legally change hands. Closing costs include appraisal fees, title search and insurance, survey, tax adjustments, deed recording fees, credit report and points, among others.

Due-on Sale Clause
A clause or provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage at the time of sale.

Negative Amortization
This occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to unpaid balance of the loan. The danger of negative amortization is that the home buyer could end up owing more than the original amount of the loan.

Private Mortgage Insurance
In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment-as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require additional premium payment of 0.5 percent to 1.0 percent of your mortgage amount plus an additional monthly fee depending on your loan's structure. On a $75,000 house with a 10 percent down payment, this would mean an initial premium payment of $338 to $675 and an extra $15 to $20 a month.