Loanfactz Definitions

Points

Points are fees paid to the lender or broker for the loan and are often linked to the interest rate, usually the more points you pay, the lower the rate. A point is equal to one percent of the * principal amount of your mortgage. For example, if you get a mortgage for $65,000, one point means you pay $650 to the lender. Ask for points to be quoted to you as a dollar amount, rather than as the number of points, so that you will actually know how much you will have to pay. Lenders frequently charge points in both * fixed rate mortgages and * adjustable rate mortgages in order to increase the yield on the mortgage and to cover loan * closing costs. These points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them. Check your local newspaper for information about rates and points currently being offered.

Glossary For This Page
(In Alphabetical Order)

* Adjustable Rate Mortgage (ARM)
Also known as a variable rate loan. The interest rate can change at specified time periods based on a standard financial index. When the interest rate on an ARM increases, your monthly payments will increase and when the interest rate on an ARM decreases, your monthly payments will be lower. Most ARMs have * caps.

* Cap
A limit on the amount the interest rate or monthly payment can increase in an adjustable rate mortgage.

* Closing Costs
Various fees and expenses (in addition to the price of the property) paid by the seller and buyer to complete the real estate transaction - the transfer of ownership of property from the seller to the buyer. Some closing costs include: loan origination fee, points, title search and title insurance, credit report fee, property taxes, appraisal fee, financing costs, brokerage commissions, items that must be prepaid or escrowed, interest from the closing date to the beginning of the 1st payment, hazard insurance premium, and mortgage insurance premium. Not all closing costs may apply to your transaction. Closing costs can vary, ranging between 2 and 10% of the sale price of the property. Ask the lender or the real estate agent for a complete list of closing cost items.

* Fixed Rate Mortgage
A home mortgage loan in which the interest rate does not change during the entire term of the loan.

* Principal
The amount of money borrowed to buy your house or the amount of the loan that has not yet been paid back to the lender. This does not include the interest you will pay to borrow that money. The principal balance (sometimes called the outstanding or unpaid principal balance) is the amount owed on the loan at any given time.

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