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Adjustable-rate
loans,
also known as variable-rate loans, usually offer a lower
initial interest rate than fixed-rate loans. The interest
rate fluctuates over the life of the loan based on market
conditions, but the loan agreement generally sets maximum
and minimum rates. When interest rates rise, generally so
do your loan payments; and when interest rates fall, your
monthly payments may be lowered
Annual
percentage rate
(APR) is the cost of credit expressed as a yearly
rate. The APR includes the interest rate, points, broker
fees, and certain other credit charges that the borrower
is required to pay.
Conventional
loans are
mortgage loans other than those insured or guaranteed by a
government agency such as the FHA (Federal Housing
Administration), the VA (Veterans Administration), or the
Rural Development Services (formerly know as Farmers Home
Administration, or FmHA).
Escrow
is the holding of money or documents by a neutral third
party prior to closing. It can also be an account held by
the lender (or servicer) into which a homeowner pays money
for taxes and insurance.
Fixed-rate
loans generally
have repayment terms of 15, 20, or 30 years. Both the
interest rate and the monthly payments (for principal and
interest) stay the same during the life of the loan.
The interest
rate is the cost of borrowing money expressed as a
percentage rate. Interest rates can change because of
market conditions.
Loan
origination fees
are fees charged by the lender for processing the loan and
are often expressed as a percentage of the loan amount.
Lock-in
refers to a written agreement guaranteeing a home buyer a
specific interest rate on a home loan provided that the
loan is closed within a certain period of time, such as 60
or 90 days. Often the agreement also specifies the number
of points to be paid at closing.
A mortgage
is a document signed by a borrower when a home loan is
made that gives the lender a right to take possession of
the property if the borrower fails to pay off on the loan.
Overages
are the difference between the lowest available price and
any higher price that the home buyer agrees to pay for the
loan. Loan officers and brokers are often allowed to keep
some or all of this difference as extra compensation.
Points
are fees paid to the lender for the loan. One point equals
1 percent of the loan amount. Points are usually paid in
cash at closing. In some cases, the money needed to pay
points can be borrowed, but doing so will increase the
loan amount and the total costs.
Private
mortgage insurance
(PMI) protects the lender against a loss if a borrower
defaults on the loan. It is usually required for loans in
which the down payment is less than 20 percent of the
sales price or, in a refinancing, when the amount financed
is greater than 80 percent of the appraised value.
Thrift
institution is
a general term for savings banks and savings and loan
associations.
Transaction,
settlement, or closing costs
may include application fees; title examination,
abstract of title, title insurance, and property survey
fees; fees for preparing deeds, mortgages, and settlement
documents; attorneys' fees; recording fees; and notary,
appraisal, and credit report fees. Under the Real Estate
Settlement Procedures Act, the borrower receives a good
faith estimate of closing costs at the time of application
or within three days of application. The good faith
estimate lists each expected cost either as an amount or a
range.
This
information is courtesy of the Federal Trade Commission.
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