Mortgage Basics
Points, fees, and adjustable rates. If you are brand new to the home buying arena, then mortgage terminology can be as foreign as reading Greek.
The famous quote by Sir Francis Bacon rings true for all prospective buyers, "Knowledge is power." Use the following glossary of terms to help you raise your own awareness.
Underwriting: This lender process is used to determine how much of a risk you and your mortgage would be to their company. An underwriter will evaluate such things as your credit, available collateral, as well as your employment and current debts.
Points: Broken into two categories, discount and origination, this term refers to a fee paid when obtaining a mortgage.
- Discount -- These fees are tax deductible. You can assume to pay 1% of the total loan amount for each point. Paying points can reduce your final interest rate.
- Origination -- Less popular with buyers, as they offer no real benefit to the borrower, these points are fees paid to the lender or loan officer in exchange for their job of evaluating and processing your mortgage loan.
Fixed Rate: Your interest rate will remain the same throughout the life of the loan.
Adjustable Rate: Your interest rate is adjusted periodically. There also may be a penalty for paying off the loan before its maturation date.
Amortization: The decrease in the principle owed on a home, as it decreases over the life of the loan.
Down Payment: A portion of your total home cost that is paid up-front. It can result in a smaller monthly payment and a lower principle balance.
Good Faith Estimate: RESPA requires the lender to provide a borrower with an estimate of the fees that will be due at closing. They must provide this within three days of taking your application.
Escrow: Your funds are held in an escrow account by a third party until the closing of your transaction.
Refinancing: There may come a time during the life of your loan that you will wish to refinance. Perhaps you want to take advantage of lower interest rates or to consolidate debt. If you are eligible, in great credit standing, you may be able to do just that.
For more information the mortgage process, be sure to talk with a lender.
By Carla Davis
Courtesey of Realty Times
If you or someone you know is planning a Move or Sale of their home in the near future, call your Bergen County, NJ experts, Lisa & Bob Hammerstein at (201)218-6802 or visit us on our website at www.HammersTeam.com. We'll be able to help you if you're Moving or Selling in any of the towns located in Bergen County New Jersey.
For more Local Information about the Pascack Valley area of Bergen County, New Jersey, call Bob & Lisa at (201)218-6802or visit us online at www.HammersTeam.com.
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Lenn - thanks for the email... These are just basics.
Lisa and Robert... i came across this post the other day, but didn't get a chance to comment...some good basic info... but one thing, you stated this..
"Less popular with buyers, as they offer no real benefit to the borrower, these points are fees paid to the lender or loan officer in exchange for their job of evaluating and processing your mortgage loan."
Not really true, because HUD changed the Good Faith Estimate. If you look at the GFE, all lender fees plus the origination fee is tallied in this box called origination fee. On FHA loans, the origination charge in sense could be used to pay for that rate also. It all depends on how the loan officer works this and or explains this. The definition of origination fee by HUD is very misleading. It states, a fee paid for services of processing and or evaluating your loan. Even more so in the past, 1 origination fee could be used for that rate, and not the processing of the loan. And you couldn't charge more than 1 origination fee. Now, with the new GFE change, you can charge more than just 1 origination fee, which in most cases, would be points. It does get more complicated than the definition. Just food for thought. thanks
Jeff - thanks for pointing that out. It can be very complicated. Much more diplomatic than another community member that railed about this post the other day. As I stated before this is a Realty Times article that I posted and is just a general information post. You should always check with a professional lender for detatils when applying and learning about a mortgage. Thanks