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Mortgage FAQs   

This article serves to answer a few questions regarding mortgages.   Whether you are interested in a mortgage refinance, or buying a new house, knowing common terms can help. 

Are you considering mortgage refinancing or considering a new home loan?  With the many different types of mortgages available today, the average borrower can be quite confused when trying to figure out what type of loan will be best suited for them.  Let’s consider some of the most common questions borrowers have when choosing a mortgage loan.   

1. What is a Home Loan or Mortgage?   A mortgage is a loan granted to a borrower by a lender on a property as security for a debt created by agreement or by operation of law (promissory note). Upon signing the contract, the borrower agrees to repay a specified sum of money plus interest at a specified rate and length of time.   

2.  What are closing costs and are they obligatory?  All of the fees you must pay to have the loan originated, lender fees, the title researched and cleared by a title company, and many other fees are due at closing and make up closing costs.  A good faith estimate and a Truth-In-Lending disclosure legally should be provided to you and these costs will be listed in these documents. See closing costs more details

3. What is the difference between down payment  and cash-to-close? All of the money you are required to bring to the loan closing is considered cash-to-close. This may include your new homeowner's insurance premium, the down payment and all of the closing costs. It is important to note that it cannot be paid in cash but must be in the form of a cashier's check or a wire transfer from the bank, so you will want to have the money in your bank account for at least 2-3 months before closing.  

4.  What is a loan-to-value?  LTV, or loan-to-value means the percentage of your loan in relation to the market value of the house.  For example, if the house appraises for $200,000 and the mortgage loan you are trying to obtain is $150,000, then you would potentially have a 75% LTV, or loan-to-value. 

5.  What is a bad credit mortgage?  This is a type of mortgage that is designed for people who don't have a great credit score or who have a poor credit history.  Because the people receiving this type of loan may not be as likely to make their payments on the loan, there is higher risk to the lender.  This results in a higher interest rate. See bad credit mortgage for more details

6.  Why do I need an appraisal?  Because the house itself is the collateral for the mortgage refinance or the home loan, a certified appraisal must be done to determine its value.  The lender will choose the appraiser who will determine the value and provide a report with the findings. 

7.  How can I get out of paying PMI?  When you purchase a house you will need to have at least 20% in a down payment in order to avoid PMI or private mortgage insurance.  For mortgage refinancing, you need to borrow less than 80% of the value of the home if you don't want to pay PMI. See private mortgage insurance for more details

8.  Why does a mortgage take so long to pay off?  A mortgage is designed to be a long term obligation because the loan is so large.  This makes it possible for people to afford a home.    More interest than principal is paid at the beginning of the loan so that the lender is making money. 

9. Is it possible to pay off a mortgage early?  When you take out a mortgage loan, make sure there is a clause in the contract that allows for early pay-off without any penalties.   

10. Do all borrowers pay the same mortgage interest? No. not all borrowers pay the same interest on their home loan. The interest rates usually vary depending credit score of the borrower, the market as well as the lender. Compare interest rates before with different lenders before taking a mortgage. 

  

11. What is a mortgage refinance? A mortgage refinance allows you to essentially pay off the mortgage you currently have by taking out a new one. The “refinanced” mortgage will usually offer a lower interest rate. In other words, you can refinance your mortgage to extend your home loan period, apply for a lower interest rate, or to use some money out of your equity. See mortgage refinance for details

  

12. What is a second mortgage? A second mortgage is a type of secured loan or mortgage refinancing that allows you to borrow money (a second loan) against your home equity – see second mortgage for more details. See second mortgage for more details.

  

13. What is a reverse mortgage?  Also called lifetime mortgage, a reverse mortgage is a loan that allows you (homeowner) to release the home equity in the property as cash, lump sum or multiple payments. See reverse mortgage for more details

  

14. Is there a difference between a mortgage broker and a mortgage banker? Yes. A mortgage brokers work as intermediary to help match borrowers with mortgage lenders based on certain criteria. These days, mortgage brokers are the largest sellers of mortgage products for lenders, participating in more than 79 % of all mortgage transactions. Mortgage bankers, however, make mortgage loans directly to lenders; that is, they fund the loans. 

  

15. What is a mortgage principal? The mortgage principle is the amount of the loan that you have borrowed minus the interest. For instance, if you have a $200,000 mortgage, your principal balance is $200,000. If you buy a home for $220,000, but you put down $25,000 in cash, your principal balance of your mortgage would be $195,000. 

  

16. What is a mortgage interest?  Mortgage interest is the money you pay in interest to the lender that has borrowed you the home loan (mortgage).  See mortgage interest for more details.


17. What is a fixed rate mortgage? As the name says, a fixed rate mortgage has steady interest rates and monthly payments that do not change throughout the life of the mortgage loan. See
fixed rate mortgage for details.

18. What is an adjustable rate mortgage (ARM)? Unlike a fixed rate mortgage, adjustable rate mortgage has interest rates and monthly payments that can change periodically due to fluctuations in market. See adjustable rate mortgage for more details.

19. What is an interest-only mortgage? Interest-only mortgages are home loans that require you to make an interest payment on the principal in monthly installments for a fixed period.

  

 

  10 Steps to Home Ownership:

Step 1: Are You Ready?

Step 2: Hire a Realtor

Step 3: Get Loan Pre-approval

Step 4: Search for Homes

Step 5: Choose a Home

Step 6: Obtain a mortgage

Step 7: Make an Offer

Step 8: Insure Your Home

Step 9: Close the Deal

Step 10: Avoid Foreclosure

 

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