Knowing what your Mortgage Professionalis talking about is important when obtaining a mortgage. There are acronyms and words that are spoken regularly that just make you say HUH?! I remember my daughter asking me a couple of years ago what a ARM had to do with a mortgage, and why I was talking about other peoples ARM's. Most clients are already familiar with the term however are not always sure how it works. Below is a list of some common words used in mortgage lending.
APR - Annual Percentage Rate is listed on the Truth-In-Lending statement. The APR refers to the total cost of the loan.
ARM- Adjustable Rate Mortgage is a loan with a rate that will adjust after the original term. For instance a 5 year ARM will have the same rate for the first 5 years and adjust yearly thereafter
Balloon - A Balloon Mortgage is due in a lump sum at the end of the term. A 5 year balloon mortgage will be due in full after 60 months. Some lenders will allow you to lock the balance of your loan for the remainder of the term.
Buydown - Money paid by buyer, seller, lender etc to lower the rate or monthly mortgage payment for a couple of years or the entire term of the loan.
Escrow Account - An escrow account is set up with your mortgage so that when your payments are made monthly a portion of the payment is applied to an account that will pay your taxes and insurance when they come due.
Good Faith Estimate (GFE)- Provided by the lender to itemize all costs related to the purchase or refinance of a home.
Mortgage Commitment - Agreed upon date on the purchase contract for a buyer to obtain their mortgage financing.
Negative Amortization - A loan where the monthly payment is not full principal and interest payments causing the outstanding principal balance to increase.
PITI - An acronym for Principal, Interest, Taxes and Insurance.
Settlement Statement - Also referred to as the HUD-1. A form used to itemize buyer and seller charges, fees, escrows, credits, etc at closing.
Truth-In-Lending (TIL) - Federal law requires lenders to disclose the terms and conditions of the mortgage. The truth in lending includes the APR.
PMI - (Private Mortgage Insurance). PMI is required when putting less than 20% down on the purchase of a home or having less than 20% equity when refinancing when 1 loan is obtained. PMI can be paid upfront in one lump sum, monthly, or by the lender resulting in a slight increase in rate. PMI is to protect the lender against losses caused by mortgage default
Points - Points are paid for different reasons. Origination points are paid as a fee by the lender to obtain the loan. Discount points are paid to buy down the rate.
Pre Payment Penalty- Pre Payment Penalties are paid when you sell or refinance your home prior to the expiration of the term of the pre payment penalty of your loan. Not all loans have pre payment penalties.
When working with a Mortgage Professional it is important to ask questions and understand terms. Knowledge is power and without it you could end up with something you didn't bargain for.
Kim Murphy - 1st Advantage Mortgage
Providing Home loans for over 10 years