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Purchasing a home with the help of a mortgage loan can be a daunting experience. With so many mortgage terms being used in the mortgage industry, it is very important for you to know about them so that the lenders do not take undue advantage of your ignorance. You need to understand the terminology to navigate the process in the correct direction. Read this article to educate yourself on the basic mortgage terms that will help you get started.

1. Mortgage: This is the loan that helps buyers to pay for a new home. The property for which the homeowner takes the loan is itself the collateral for this loan. This means that if the homeowner is unable to pay back the loan within a fixed time, then the bank or the financial company will seize the house or property.

1. Fixed rate mortgage: A mortgage loan with an interest rate that does not change throughout the term of the loan. However, the interest rate generally remains higher than on an adjustable rate mortgage.

1. Adjustable rate mortgage: A mortgage with an interest rate that changes at intervals. While you take an adjustable rate mortgage you get lower interest rates initially but then the interest rate changes depending on an index.

1. Affordability: This refers to the consumer’s ability to afford the house or the mortgage loan. This is expressed in terms of the maximum price the homeowner could pay for a price to get approved for the mortgage.

1. P&I: This is the monthly principal and interest payment which the homeowner is supposed to repay according to the terms of the mortgage.

1. Principal: This is the actual amount the homeowner borrows from the mortgage provider. In most cases, it is the loan amount minus the amount of down payment done on the mortgage.

1. Amortization: This refers to the repayment procedure where the loan amount is repaid in monthly payments of principal and interest over a given period of time.

1. Balance: This is the amount left to be paid. It is equivalent to the sum of all the prior payments on principal, deducted from the actual loan amount.

1. Equity: This is the difference between the value of the home and the balance on the outstanding mortgage on the home.

1. Foreclosure: This is a legal process in which the bank or the lending institution seizes the property securing a mortgage loan if the borrower defaults.

By reading this article, you must have gathered much knowledge on the basic mortgage terms used in the mortgage industry. So now when you proceed through the home loan process, you can remain confident and informed.