A recent study of US and UK home buyers, conducted by the London based Nationwide Building Society, found that more than 40% of people buying homes were confused by the jargon that lenders used to describe mortgages.
When it comes to taking out a mortgage on your home, could confusing mortgage jargon be costing you money and causing you to make ill-informed choices?
According to the study, only 31% of home buyers understood what the term “LTV” meant, an acronym that stands for “loan to value” and describes the ration between the amount of the mortgage and the value of the home.
Not only did the survey show that many mortgage borrowers were confused about what the terms meant, but they also were shy about asking for explanations of various words that they didn’t understand.
In order to make a wise financial decision and choose the right mortgage for you, it is essential to do your research and understand exactly what you are signing up for. If you are unsure of what a mortgage term means, don’t be afraid to ask your lender for clarification.
Here are a few of the common mortgage jargon words that many homebuyers don’t understand:
Adjustable Rate Mortgage
This is a loan that has an interest rate which will fluctuate over time, such as every three years or every year after the first five years. This type of mortgage can be advantageous if you plan to sell the home within the first few years of owning it. Another option is a fixed rate mortgage, which does not fluctuate.
This is a calculation that your mortgage lender will make in order to determine the largest mortgage that you could possibly afford to obtain. The calculation is made by looking at your income, your existing debt and other factors.
Stips Or Stipulations
If your mortgage lender mentions “stips” they are probably talking about stipulations, which are the requirements that are submitted in order to clear your mortgage to close. This includes verifications of your bank statement as well as proof of employment and rent. Verification of Rent and Verification of Employment are often abbreviated as VOR and VOE.
This refers to the US Department Of Housing Development Settlement Statement that you will be required to sign when taking out a mortgage. This document contains the details of the arrangement, including all fees agreed upon.
These are just a few examples of mortgage jargon that you might not be familiar with. If you have any more questions about taking out a mortgage on a home, contact your trusted mortgage professional.