Few People Care To Understand Loan Terminology
By: jessicapeterson | Posted: 18th April 2007
Absolutely true. There are so many people who read the fine print believing they understand it all that it is surprising that there aren’t more defaults. Reading does not mean understanding all the financial jargon, purposely put to define and give a frame to loans, not to make you fall for them. If you do, it is your responsibility…
It’s not all “Bull-jargon”
Fees have names that not always suggest what they cover. Underwriting, for example, may mean one thing to the unwary, but in finance it means the act of analyzing the information and situation of a borrower and determining the correct “package” or set of conditions for the loan he is applying for.
Escrow is the middleman, who takes care of all the procedures and handles the legal documents for a transaction and the disbursement of funds. Forbearance is the act of manifesting in writing, the lender’s will not to carry out legal action on a mortgage with missed payments.
So, Everything Has Its Meaning
A special term may suggest something to the profane customer and have a totally different meaning. Likewise, the fine print or small writing: Don’t pretend you understand all it says, just out of not wanting to show your lack of knowledge. Whatever you don’t understand, ask. Take a copy home and consult whatever you don’t know or are not sure about, with someone who does know.
There are also expressions that complicate matters for you, the borrower. But then again, you are not expected to be expert loan agents. Just know what you are in for. Know what to expect during the term of the loan. Principally, what you are entitled to, whether it is a refinancing to change the duration or change the character of the interest rate from fixed to adjustable or vice versa. You must know what you are not allowed to do and what you are expected to do under certain circumstances.
Consider This
“Herein”, “whereby”, “hereafter”, “inasmuch” and “hereinafter” sound so stupid to a profane ear. More often than not, they confuse people and even make them think it is the opposite of what they really mean. They are placed, so to speak, so that there will not be any misunderstanding… to a knowledgeable loan agent or an attorney. Not to us, simple beings. But then, if we don’t know a word or expression, let’s ask, folks!
PMI
Private Mortgage Insurance is meant to cover only the payments that correspond to the portion of the loan up to 20% of the value of the house you are purchasing. It does not last the whole loan. So, it is important to know, that as from a certain date, you will not have that expense any more and that your lender is obliged to communicate this to you.
One thing that misguides even those who are supposed to be familiar with these matters is the APR. It is not what its name suggests. It means Annual Percentage Rate but it is not only the interest rate, but a set of fees added to the rate and proportionally distributed on a yearly basis. It is even confusing to the loan agents, sometimes. Does that make you feel better? Even so, don’t be shy. Ask whatever it may be a dozen times. You won’t get turned down for that.
About the Author
Jess Peterson writes financial articles for http://www.Yourloanservices.com where she shares her knowledge about how to get money for a starting-up business, consolidating any kind of debt, repairing a home even with a bad credit history and more.
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Tags: expressions, circumstances, middleman, duration, mortgage, escrow, interest rate, loans, different meaning, refinancing, disbursement, lack of knowledge, finance, legal documents, forbearance, financial jargon