It is an absolutely glorious afternoon, you and your partner are both looking sharp sitting there, pens posed, ready to begin signing on the dotted lines of what your mortgage lender told you would be just a few closing documents … nothing in this world can possibly spoil this day for you and your guy [or gal]. Enter: Your closing agent, what on earth are all those stacks of papers with all those paperclips? You look to your boyfriend for clarification only to be met with that silly shirking of the shoulders things he does. As badly as you hate to let on, neither of you have a shred of a clue what all this paperwork's about … not even a smidgen of a shred. You've heard your lender mention these terms and fees in association with your loan, but actually seeing them in black and white can be a bit overwhelming.
Have you put off buying your house because you're perplexed by all those big words and even worse, those indecipherable acronyms plastered across those hideous inserts placed in your morning paper by predatory lenders? Why with what you've heard about some lenders, it's no wonder you're befuddled a bit.
Wouldn't it be much easier for you if there were simpler explanations rendered for all this mortgage lingo? It's certainly not that you're ignorant; perhaps you've simply never purchased a home before … everyone's entitled to a first-time situation. Let's take a look at a dissection of some of the terms you might want to become a bit more familiar with before you actually get ready to sign on the dotted lines … better still, before you begin shopping for your loan. You'll have a much more accurate picture of what type of mortgage you are getting and what fees you are paying at the time of your closing.
Add-On Interest - Interest paid by the borrower on the principal amount for the duration of a loan.
APR – Annual Percentage Rate is the amount it's going to cost you to borrow the money you are financing. Your APR is the actual cost of your loan quoted as a yearly rate on the balance of the loan.
ARM – Adjustable Rate Mortgage is a mortgage upon which the interest rate is adjusted at regular intervals to reflect changes in a specified financial index. These loans fluctuate up and down with the economy. When the economy is good the Federal Reserve Board raises interest rates, thus lowering them when the economy is bad.
Balloon Loan – A loan upon which the monthly payments are not large enough to pay off the entire amount owed on the loan within the term length of the loan. The borrower must make a larger lump-sum payment at the end of the term to pay off the principal balance.
Biweekly Mortgage – A loan that works just like a biweekly paycheck, only a biweekly paycheck is received every two weeks, but a biweekly mortgage is one that's due every two weeks. You do, however, end up paying off the loan in a shorter period of time.
Closing Costs – Fees that accompany your loan closing, such as appraisal fees, title insurance, and attorney/closing agent fees.
Discount Points – Fees you pay at the time your lender makes your loan. A discount point is equal to 1% of your total loan amount.
Due-on-Sale Clause – This means that if you sell the house you are buying that you must pay off any balance you owe on it, along with interest owed at that time.
Fixed Installment – The monthly payment of your home loan.
Fixed-Rate Mortgage – A fixed-rate mortgage is a loan for which the interest rate does not change over the term of the loan.
Graduated Payment Mortgage – a loan that requires your payments to be made in increasing amounts over a period of years, generally being unusually low at the onset and slowly climbing until about the third or fifth year. At that point, the loan payment generally becomes fixed.
Housing Expense Ratio – The percentage of your monthly gross income allocated to paying your mortgage. The lower your housing expense ratio, the less of your income that's required to pay your monthly payment.
HUD-1 Settlement Sheet – A closing statement or settlement sheet which reflects all closing costs associated with your home purchase.
Initial Interest Rate – The beginning or original rate of interest of an adjustable rate mortgage.
Interest-only Loan – A loan upon which when making your monthly payments you are only paying the interest that has accrued and none of your payment goes towards the principal amount of the loan.
Loan-Origination Fee – This is the 1% fee charged by the lender for processing.
Mortgage Banker – A company that makes loans from its own funds.
Mortgage Broker – A company that matches you with a potential lender. It does not fund the actual loan itself.
Mortgage - A legal document specifying an amount of money being loaned to purchase a home. It states a certain interest rate and assumes the purchase property as collateral.
Purchase Money Mortgage – A mortgage you obtain to buy a property.
Rate Lock – Promise made by your lender to maintain its offer of a current cost of borrowing for an express period of time.
Recording Fees - Cost of having your deed and mortgage recorded in the public records. Offices responsible for public records may include County Clerks of Court, County Registrars of Deeds, or other similar local governmental offices and/or agencies.
Title Insurance – A policy issued to lenders and buyers to protect against any loss incurred regarding ownership of a property.
Variable Interest Rate – A rate of interest that fluctuates based upon financial factors including bank rates paid on certificates of deposit and/or Treasury bills.
Wraparound Mortgage – A loan to a buyer for the remaining amount on a seller's first mortgage plus an additional amount requested by the seller. Both payments are made to the lender who holds the wraparound loan.
Questions? Visit www.homelounge.com or call Toll Free 1-888-420-MOVE (6683). Or contact a real estate agent or broker.
