Home equity loans are a type of mortgage loan which differ from a first mortgage, otherwise known as a first lien that allows a borrower to purchase a property. These loans originate from a property owner’s equity and although first and second mortgages differ quite a bit, they still use many of the same terms. Some terms that you see with a home equity loan that you may also see with a first mortgage, but may differ in some meaning may come across as:

1. Principal
The total amount of debt for a loan minus the interest.

2. Appraisal

An estimated value of the property that is determined through a written analysis by a qualified appraiser. While an appraisal can be used to help a first mortgage borrower determine the condition of the property, an appraisal through a home equity loan helps a lender determine the qualification status of the borrower.

3. Appreciation

This term refers to the increase in value of a property due to market conditions. An appreciated value is the exact amount that your home is worth. When acquiring a first mortgage, a home value’s may be negotiated. Re-financers may find that the market value of their homes is more set in stone.

4. Break-even point

The point at which this term refers to is when the homeowner decides to refinance based of the notion that they will have an increase in savings.

5. Cash-out refinancing

Refinancing your home for more than you owe and using the cash for the purpose of paying off debts or financing home renovations.

6. Closing Costs

Up-front money that is paid to the lender at the closing of the mortgage deal, which generally adds up to 2-6% of a principal amount. Closing costs typically include a loan origination fee, points, an appraisal fee, title search and insurance, survey, taxes, a deed recording fee, a credit report charge and additional costs that may come up.
7. Origination fee
These fees are charged by a lender to process a loan.
8. Credit ReportA borrowers credit report is defined as a report that a lender obtains from one or more of the available credit sources to determine your creditworthiness. Credit report show all of your borrowing and delinquency history.

9. Equity or owner’s interest

The amount that a home equity loan or second mortgage borrows against is the fair market value of your home – the current amount left on your mortgage.

10. Home equity loan

The definition of the loan itself states that this type of loan is a second mortgage secured against the properties equity total that allows a homeowner to tap into their home equity to obtain a lower interest that one would usually get on another unsecured loan.

11. Home equity line of credit

These two names sound the same, but a line of credit differs from a loan. A line of credit is defined as a secured loan that is borrowed against the equity of a home. Lines of Credit enable homeowners to have an open access of money when they need it. These second mortgages also help homeowners receive lower interest than they would on an unsecured credit line.
12. Interest rate
This term can be defined as an annual percentage of a loan based off of 100. The lower the interest rate, the low your monthly payment is.
13. Lock-in

A lock-in is a lender’s guarantee for a specific interest rate that you can obtain within a specific time period. Lock-in periods usually are 30 days prior to closing.

14. Mortgage Refinancing

Refinancing is when you pay off the remainder of your first mortgage with the proceeds you get from your second. Doing this allows existing borrowers to get a different mortgage product (example: alternate from 30-year fixed to 15-year fixed), land a lower interest rate, obtain money to renovate the home or pay off more debt with the remainder you may have left.

15. Pre-approval

When you complete a mortgage application and provide a lender with the further documentation that they may request to d a background check on your financial background and credit, you can be given the exact mortgage amount for which you are approved.
16. Prequalification
Another term that may be confused with the previous one is where lenders provide you an estimated loan size that you may be able to afford. Borrowers can always walk away from these amounts.
17. Title

A document that shows property ownership.

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