Your simple and easy guide

Mortgages don’t have to be confusing even for the first time homebuyer. Use our guide here to understand 45 common lending and mortgage terms.

A type of mortgage facility in which the interest rate applied to the outstanding balance varies throughout the life of the loan.

A consumer’s capacity to afford a house. Affordability is the amount of money a mortgage borrower can make on a monthly basis towards a mortgage, based upon their income, expenses, and the proposed monthly payment. Mortgage affordability has a direct relationship with the maximum purchase price you can qualify for when buying a home.

A document submitted by one or more individuals applying to borrow money to purchase a real estate property.

A fee that some lenders charge to accept an application. It may or may not cover other costs such as a property appraisal or credit report, and it may or may not be refundable if the lender declines the loan.

Acceptance of the borrower’s loan application. Approval means that the borrower meets the lender’s qualification requirements and also its underwriting requirements. In some cases, especially where approval is provided quickly as with automated underwriting systems, the approval may be conditional on further verification of information provided by the borrower.

A term used when a Lender pre-approves a borrower’s request assuming that the borrower meets certain requirements. The borrower is still expected to submit information to receive a firm approval.

Anything of monetary value that a person owns. Assets include real property, personal property and enforceable claims against others. (including bank accounts, stocks, mutual funds and so on).

The amount of the original loan remaining to be paid. It is equal to the loan amount less the sum of all prior payments of principal.

An individual who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

On a home purchase, the process of transferring ownership from the seller to the buyer, the disbursement of funds from the buyer and the lender to the seller, and the execution of all the documents associated with the sale and the loan. On a refinance, there is no transfer of ownership, but the closing includes repayment of the old lender.

Assets pledged as security for the repayment of a loan.

The method of financing used when a borrower contracts to have a house built, as opposed to purchasing a completed house.

A report from a credit bureau containing detailed information bearing on credit-worthiness, including the individual’s credit history.

Failure of the borrower to honor the terms of the loan agreement. Lenders (and the law) usually view borrowers delinquent 90 days or more as in default.

Refers to failure of the borrower to make a required mortgage payment when due or as agreed.

The set of lender requirements that specify how information about a loan applicant’s income and assets must be provided, and how it will be used by the lender.

The difference between the value of the property and the loan amount, expressed in Cedis or as a percentage of the price. For example, if the house sells for GHS100,000 and the loan is for GHS80,000, the down payment is GHS20,000 or 20%.

A legal right or interest in a property that affects title and lessens the property value. Encumbrances can take the form of claims, liens, unpaid taxes and so on. These will usually have to be taken care of before a buyer may purchase a property.

An agreement or letter in which a lender (usually a bank or other financial institution) sets out the terms and conditions (including the conditions precedent) on which it is prepared to make a loan facility available to a borrower.

The sum of all upfront cash payments required by the lender as part of the charge for the loan. 

An interest rate that is fixed for the term of the loan.

The legal process by which a lender takes possession of the property that secures a mortgage loan when the borrower defaults.

Insurance purchased by the borrower, and required by the lender, to protect the property against loss from fire and other hazards.

The rate charged the borrower each period for the loan of money, by custom quoted on an annual basis. A rate of 6%, for example, means a rate of 1/2% per month. A mortgage interest rate is a rate on a loan secured by a specific property.

An interim agreement that summarizes the main points of a proposed deal or confirms that a certain course of action is going to be taken. Normally it does not constitute a definitive contract but signifies a genuine interest in reaching the final agreement subject to due diligence, additional information or fulfillment of certain conditions.

The amount the borrower promises to repay, as set forth in the mortgage contract.

The number of percentage points added to an index to calculate the interest rate on an ARM at each adjustment.

The period until the last payment is due. This is usually but not always the term, which is the period used to calculate the mortgage payment.

The largest loan size permitted on a particular loan program.

The minimum allowable ratio of down payment to sale price on any program. If the minimum is 10%, for example, it means that you must make a down payment of at least GHS10,000 on a GHS100,000 house, or GHS20,000 on a GHS200,000 house.

A document that creates a lien on a property as security for the payment of a debt.

A company engaged in the business of originating and/or funding mortgages for residential or commercial property.

Easily defined as a loan that a bank or mortgage lender gives a purchaser to help with purchase of a home, which serves as collateral to provide for repayment in case of default.

The monthly payment of interest and principal the borrower makes.

The period over which the borrower is obliged to make payments. On most mortgages, the payment period is a month, but on some it is biweekly.

A full or partial payment of the principal before the due date. This might occur if the borrower makes extra payments, sells the property or refinances the existing loan.

A charge imposed by the lender if the borrower pays off the loan before the prepayment period. The charge is usually expressed as a percent of the loan balance at the time of prepayment, or a specified number of months’ interest.

Refers to the amount of debt, not counting interest, left on a loan. Portion of the monthly payment that is used to reduce the loan balance.

Compiling and maintaining the file of information about a mortgage transaction, including the credit report, appraisal, verification of employment and assets, and so on.

The process of determining whether a prospective borrower has the ability, meaning sufficient assets and income, to repay a loan. Qualification is sometimes referred to as “pre-qualification” because it is subject to verification of the information provided by the applicant. Qualification is short of approval because it does not take account of the credit history of the borrower. Qualified borrowers may ultimately be turned down because, while they have demonstrated the capacity to repay, a poor credit history suggests that they may be unwilling to pay.

Mortgage refinancing is the process of replacing your mortgage or mortgages on your property with a new mortgage, generally with different terms than the original mortgage.

Any individual who has a 25% or greater ownership interest in a business is considered to be self-employed. The business’ financial statements for three years are assessed for the mortgage.

The number of years until a loan is due to be paid in full.

A document that gives evidence of ownership of a property, as well as rights of ownership and possession.

An interest rate that changes periodically in relation to an index.

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