Refinance Mortgage Basics Terminology You Need to Know
If youre in the market to refinance your home mortgage loan, learning the lingo can boost your confidence and prevent loan officers from taking advantage of you. Learning mortgage terminology is a lot like eating your spinach; however, here are basic terms you need to learn before shopping for a new home loan.
Adjustable Rate Mortgages
Mortgage loans with interest rates that change periodically are called Adjustable Rate Mortgages and are frequently abbreviated APR. The interest rate is tied to a certain financial index like the prime rate or treasury index. These loans typically come with an ultra low introductory or teaser interest rate; however, at the end of the introductory period the interest rate is reset to the contract mortgage rate.
Annual Percentage Rate (APR)
The APR is a numeric representation of all costs associated with a mortgage offer expressed as a yearly interest rate. Mortgage lenders all have different ways of calculating the Annual Percentage Rate and it usually does not accurately represent third party charges. Youre much better off requesting a Good Faith Estimate when comparison shopping instead of relying on the APR.
Fixed Rate Mortgage Loan
Home loans that have an interest rate set at closing that does not change for the duration of the mortgages term length are fixed rate mortgages.
Good Faith Estimate (GFE)
Mortgage lenders are required by law to provide you with a copy of this document within three days of receiving your application; however, most mortgage companies will provide you one on request. The GFE outlines all estimated costs associated with your loan and is a useful tool for comparing loan offers.
Loan to Value Ratio (LTV)
Your Loan to Value Ratio is the derived from the appraised value of your home and how much youre borrowing. This ratio is typically expressed as a percentage and most lenders do not like LTV ratios higher than 80%. High LTV ratios can lead to Private Mortgage Insurance, which is something you want to avoid paying at all cost.
Points (Discount & Origination)
Points come in two flavors. There are discount points you pay in exchange for something like a lower interest rate or more favorable terms and origination points you pay for your loan representatives services. One point is the equivalent of one percent of your mortgage amount. Unless you plan on keeping your mortgage for a very long time it is usually not worthwhile paying points if you can avoid them.
Term Length
The term you choose is the amount of time you have to repay the loan. The most common choices for term length are 15 or 30 years. The longer term length you choose the lower your payment will be; however, you will pay much more to the lender for your financing.
Third Party Settlement Charges
These are fees that you will be required to pay at closing that appear on your Good Faith Estimate. Mortgage companies frequently low-ball these costs to make their loan offer appear more attractive. Always compare line-by-line using the Good Faith Estimate when comparison shopping for a new mortgage.
You can learn more about refinancing your mortgage without being taken advantage of with a free mortgage tutorial.
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Louie Latour specializes in showing homeowners how to avoid costly mortgage mistakes and predatory lenders. To get your hands on this free video tutorial: "Refinance Mortgage - What You Need to Know," which teaches strategies for finding the best mortgage and saving thousands of dollars in the process, visit Refiadvisor.com.
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