Mortgage loans are typically the most important purchase a homeowner will make. In order to find the best loan you need to educate yourself. Mortgage jargon is an important part of that education. Here are a few basic mortgage definitions.
When you are ready to close on your mortgage you will have to pay expenses at closing. The amount of these expenses depends on the type of loan you are refinancing and where you live. Your mortgage lender is required to disclose any fees before closing. This disclosure is made in the truth in lending estimate provided by your lender.
Points are fees you will pay to receive a lower interest rate. One point on your mortgage loan is typically 1 percent of the loan value. For instance, if you borrowed $100,000 and wanted to lower your interest rate you could pre-pay 1-3 points. This means you would pay anywhere from $1000-$3000 in upfront fees. Be sure and read the fine print from your lender as most discount rates advertised require points to be paid at closing.
Home Loan Interest Rates
When your lender writes a mortgage they charge you interest to realize a profit. Interest on a mortgage loan is front loaded. This means payments made in the early years of the mortgage are applied mostly to interest charges. When closing on your mortgage loan you have the choice to lock in your mortgage rate. This means you have a specified period of time to close on the loan at this interest rate. You also have the option of floating your interest rate. This means if the interest rates go lower you can take the lower rate. The risk here is interest rates could go higher.
Mortgage terminology is no mystery. If you do your homework prior to refinancing your mortgage you can save yourself thousands of dollars. To learn more sign up for our free eBook: Five Things You Need to Know before Refinancing Your Mortgage