Common Mortgage Terms
1. Adjustable-Rate Mortgage (ARM) - Unlike a fixed rate mortgage, payments on an adjustable rate mortgage will fluctuate over time depending on the market. Often times your initial rate will be lower than that available with a fixed rate, but then you risk it increasing down the road.
2. Amortization Schedule - The amortization schedule shows how your loan is to be repaid. It shows your monthly payment, as well as how much is dedicated to principal and how much to interest.
3. Annual Percentage Rate (APR) - A measure of all the costs over the life of the loan, including mortgage payments, fees and closing costs. It is used as a guideline to compare loans with different terms.
4. Closing Costs - All of the costs that are due at closing are called closing costs. These fees include points, appraisal and survey fees, title search and title insurance, taxes, attorney's fees, loan origination fees, inspection fees, recording fees, homeowners insurance and private mortgage insurance (PMI).
5. Closing Disclosure - The Closing Disclosure summarizes the final loan terms, financial information and cash flows at closing. You'll receive this form 3 business days before closing where all documents are then signed.
6. Debt-to-Income Ratio (DTI) - This ratio compares your debt and income to determine if you can afford to take on the added debt of a mortgage. While the front-end ratio just looks at mortgage debt, the back-end ratio also takes into consideration credit cards and other loans. Typically this ratio needs to be below 39% to qualify.
7. Down Payment - The down payment refers to the amount of money you put down, upfront on your home to secure it. The amount required depends on the loan type and the lender.
8. Escrow - The term escrow refers to an account established by the borrower to cover various mortgage bills and expenses, such as taxes and insurance.
9. Fixed-Rate Mortgage - Unlike an ARM, a fixed-rate mortgage will offer a set monthly interest rate. This eliminates the risk of your interest rate increasing, however, depending on the market, you could end up paying more in interest than with an ARM.
10. Interest - Interest is the fee that you pay for borrowing money. The amount will be a percentage of your loan amount.
11. Loan Estimate Form - Formerly known as the Good Faith Estimate (GFE) and the Truth-In-Lending Form (TIL), the Loan Estimate Form summarizes your loan terms and estimates of the cost of the loan over its life.
12. Loan-to-Value Ratio (LTV) - The amount of your mortgage loan divided by the value of your home determines your loan-to-value ratio. While 80% for this ratio is preferred, sometimes higher ones are allowed. The LTV and DTI help the lender determine your risk and therefore can affect your interest rate.
13. Points - In mortgage terms, points refer to the amount of money you pay upfront at closing to reduce your interest rate over the life of the loan. Each point equals 1% of the loan and drops your interest rate by some negotiated percentage, typically 1/4-1/2%.
14. Principal - The principal is the total loan amount that you will borrow to make your home purchase. The number does not include any interest, insurance or other mortgage fees.
15. Private Mortgage Insurance (PMI) - PMI is a type of insurance that you pay your lender to guard against a default on the loan. It's typically required when you have a downpayment of less than 20%.
16. Rate Lock - A rate lock is a lenders guarantee of an interest rate, good for a set period of time. With rates constantly changing, you'll want to talk to your Lake of the Ozarks mortgage professional about locking your rate in.
If you have any questions about mortgages or don't understand a term, be sure to ask your mortgage lender at the Lake of the Ozarks. I'm here to work with you every step of the way. I'll discuss your Lake of the Ozarks home financing needs, offer competitive rates and back it up with the first-class service you deserve! Give me a call at 573-746-7211 today!
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Senior Loan Officer
NMLS #: 493712
4655 B Osage Beach Parkway
Osage Beach, MO 65065
Cell: (573) 216-7258
**The postings on this site are my own and do not necessarily represent First State Bank of St Charles’s positions, strategies, or opinions.