Adjustable-rate
loans
also known as variable-rate loans, usually offer a lower initial
interest rate than fixed-rate loans. The interest rate fluctuates over
the life of the loan based on market conditions, but the loan
agreement generally sets maximum and minimum rates. When interest
rates rise, generally so do your loan payments; and when interest
rates fall, your monthly payments may be lowered.
Annual percentage rate (APR)
is the cost of credit expressed as a yearly rate. The APR includes
the interest rate, points, broker fees, and certain other credit
charges that the borrower is required to pay.
Conventional loans
are mortgage loans other than those insured or guaranteed by a
government agency such as the FHA (Federal Housing Administration),
the VA (Veterans Administration), or the Rural Development Services
(formerly know as Farmers Home Administration, or FmHA).
Escrow
is the holding of money or documents by a neutral third party
prior to closing. It can also be an account held by the lender (or
servicer) into which a homeowner pays money for taxes and insurance.
Fixed-rate loans
generally have repayment terms of 15, 20, or 30 years. Both the
interest rate and the monthly payments (for principal and interest)
stay the same during the life of the loan.
The interest rate
is the cost of borrowing money expressed as a percentage rate.
Interest rates can change because of market conditions.
Loan origination fees
are fees charged by the lender for processing the loan and are
often expressed as a percentage of the loan amount.
Lock-in
refers to a written agreement guaranteeing a home buyer a specific
interest rate on a home loan provided that the loan is closed within a
certain period of time, such as 60 or 90 days. Often the agreement
also specifies the number of points to be paid at closing.
A mortgage
is a document signed by a borrower when a home loan is made that
gives the lender a right to take possession of the property if the
borrower fails to pay off the loan.
Overages
are the difference between the lowest available price and any
higher price that the home buyer agrees to pay for the loan. Loan
officers and brokers are often allowed to keep some or all of this
difference as extra compensation.
Points
are fees paid to the lender for the loan. One point equals 1
percent of the loan amount. Points are usually paid in cash at
closing. In some cases, the money needed to pay points can be
borrowed, but doing so will increase the loan amount and the total
costs.
Private mortgage insurance (PMI)
protects the lender against a loss if a borrower defaults on the
loan. It is usually required for loans in which the down payment is
less than 20 percent of the sales price or, in a refinancing, when the
amount financed is greater than 80 percent of the appraised value.
Thrift institution
is a general term for savings banks and savings and loan
associations.
Transaction, settlement, or closing costs
may include application fees; title examination, abstract of
title, title insurance, and property survey fees; fees for preparing
deeds, mortgages, and settlement documents; attorneys' fees; recording
fees; and notary, appraisal, and credit report fees. Under the Real
Estate Settlement Procedures Act, the borrower receives a good faith
estimate of closing costs at the time of application or within three
days of application. The good faith estimate lists each expected cost
either as an amount or a range.
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