Helpful Real Estate Mortgage & Finance Information

Mortgage Loan - A loan for which real estate serves as collateral to provide for repayment in case of default. Mortgage Note - Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage.

Refinancing - The process of paying off one loan with the proceeds from a new loan secured by the same property.

Home Equity Loan - An additional mortgage secured by the equity in the home. All funds for this loan are disbursed at closing. Also see Home Equity Line of Credit.

Home Equity Line of Credit - A revolving line of credit secured by the equity in the home. Unlike a Home Equity Loan, these funds may be drawn and repaid like a credit card.

Debt Consolidation - The replacement of multiple loans with a single loan, often with a lower monthly payment and a longer repayment period. Can also be called a consolidation loan.

There are two basic types of mortgages.

Fixed interest rate with fixed monthly payments: Common fixed-rate mortgages include 30-year, 15-year, and balloon repayment terms. The 30-year mortgage usually offers the lowest monthly payments, with a fixed monthly payment schedule. The 15-year fixed-rate mortgage enables you to own your home in half the time and for less than half the total interest costs of a 30-year loan. These loans, however, often require higher monthly payments. Balloon mortgages are like a 30-year fixed loan except that at the end of five, seven, or ten years (the "balloon term"), the loan becomes due and payable. Monthly payments are identical to a 30 year fixed loan, however when the loan matures (at the end of the "balloon term"), you must pay it off or refinance. Balloon loans are best suited for people who know they will sell or refinance their home before the loan matures. The benefit is that the interest rate is typically one-half of one percent lower.

Adjustable (ARM) with variable rates and changing monthly payments: Mortgages with changing interest rates and/or monthly payments exist in many forms. The adjustable rate mortgage (ARM) is the most common. Initially the ARM usually offers interest rates and monthly payments that are initially lower than fixed-rate mortgages. However, payments and rates can, and often do, fluctuate according to changes in a pre-determined "index" commonly lined to the rate of return on U.S. Government Treasury bills. Some adjustable loans contain a provision permitting you to convert later to a fixed-rate loan and some carry a fixed-interest rate for a number of years, often seven, before adjusting to a new interest rate for the remainder of the loan.

However, there are many variations of these plans, such as; "buydowns","discounted" or "bi-weekly mortgages", on the market and we will shop carefully for the mortgage that suits your needs.

Bottom line, the annual percentage rate (APR) is probably the most important factor when shopping for a mortgage loan. The APR includes all the costs of credit, such as interest, points, and other charges required as a condition to the loan. Under the Truth-In-Lending Act, lenders are required to disclose the APR to provide you with a uniform and simple way of comparing loans and to prevent hidden finance charges. AT Greatland Financial we do the shopping for you.

Thrift is your typical neighborhood bank or savings-and-loan institutions that offer mortgages, savings accounts, and other financial services and product. Mortgage bankers are in the sole business of lending money. Mortgage brokers are middlemen who work on behalf of borrowers. Brokers research a variety of lending sources -- thrifts, commercial banks, and mortgage bankers -- to find loans to suit the specific needs of borrowers they represent.

You can, but unfortunately, there is no guarantee you will get the rate advertised. The rate may be good for only 30 to 60 days and, most likely, it will take you longer than that to close. To get a loan with a longer "lock in period", you usually have to pay a higher rate. Furthermore, interest rates can change daily. The better way to compare is to ask each lender what the rate would be if your closed in 90 days or whatever your timetable is. Greatland Financial will get you the best rate for your situation.

Be prepared to provide verification of income (including a pay stub and the previous two years tax returns), bank account numbers and details of your long-term debt (credit cards, auto loans, child support, etc.). If you're self employed you may also be required to provide financial statements for your business. Lenders will require detailed information. Don't be surprised if a lender wants to know the origin of your down payment.

Usually, a borrower can qualify for a mortgage loan of up to four times their household's pre-tax income (assuming no debt). For example, if your family has an income of $30,000 a year, you can qualify for a mortgage of up to $120,000. With the same income and $500 of monthly debt, you can qualify for a mortgage of up to $50,000.

Lenders when determining how large a mortgage you can obtain consider many factors. For example, lenders want to know personal information such as, credit and employment history, which includes information regarding your income, and job and you're past loan history. In addition, lenders generally prefer that your housing expenses (including mortgage payments, taxes, insurance and special assessments) do not exceed 28% of your gross monthly income. Other debt added to your housing expense should not exceed 38% of your gross monthly income. Federal Housing Administration (FHA) and Department of Veteran Affairs (VA) mortgage loan percentages may vary.

However, there are many legal safeguards, which exist to ensure this information is used fairly. For example, the Fair Credit Reporting Act requires that lenders certify to the credit bureau the purpose for which this information is sought and that it will be used for no other purpose. The Equal Credit Opportunity Act prohibits discrimination in lending based on sex, marital status, race, national origin, religion, age, or because someone receives public assistance.

Points, otherwise known as discount points, are usually the largest fee that a lender will charge. If you have to pay any points in acquiring your loan, each point equals one percent of your loan amount. For instance, if you borrow $100,000 and have to pay one point, you pay $1,000 in points to obtain the loan.

Generally, lenders expect you to be able to make a down payment of at least five percent of the house's price and to pay closing costs, which are often three to four percent of the loan amount. If you make a down payment as little as five to twenty percent, the lender will require you to pay for private mortgage insurance (PMI). If you make a down payment over twenty percent, you will not be required to pay for private mortgage insurance. Under the Federal Real Estate Settlement Procedures Act, the lender must provide you with information on known and estimated closing costs. (Requirements for VA or FHA loans may differ.)

Mortgage insurance insures the lender against default and foreclosure. If the borrower default on his or her payments and the property is foreclosed, the mortgage insurance company must repay the lender all or a portion of its losses. If you down payment or equity is less than twenty percent, you will be required to pay for mortgage insurance. Don't confuse "mortgage life insurance" with "mortgage insurance". Mortgage life insurance is an optional life insurance policy that you can buy from your insurance agent. It pays off your mortgage in the event of your death.

Pre-paying your mortgage shortens the term of your loan which will save you thousands of dollars in interest. As a general rule, on a 30-year mortgage, you save $3 for every $1 you pre-pay. You get back $2 for every $1 you pre-pay after taxes. So, pre-paying your mortgage is a risk-free and easy investment. Even rounding your monthly payment up to the nearest $100, it will save you money over the long term. (If you pay $989.00 each month, write a check for $1,000.00). For instance, if your mortgage rate is 6 percent per year, that's what you'll earn on your pre-payment. Compare that return with what you'd earn in other comparably safe investments. However, don't forget to weigh the advantages of pre-paying your mortgage against paying off debt. If your credit card interest rate is 19 percent, it doesn't make sense to pre-pay your 6 percent mortgage before paying off this higher-interest debt.

Interest, points and some closing cost may be deductible for the borrower. Make sure to consult a tax advisor.

Thrift is your typical neighborhood bank or savings-and-loan institutions that offers mortgages, savings accounts, and other financial services and product. Mortgage bankers are in the sole business of lending money. Mortgage brokers are middlemen who work on behalf of borrowers. Brokers research a variety of lending sources - thrifts, commercial banks, and mortgage bankers -- to find loans to suit the specific needs of borrowers they represent.