Mortgage Learning Center

What is a mortgage?

A Mortgage or a home loan is a legally binding contract between a lender and borrower. The property is used as collateral to secure the loan. The lender can take possession of the property if the borrower fails to satisfy the terms agreed upon or the prearranged home loan payments.

What is a mortgage refinance?

When a borrower secures money from a new loan in order to pay off an existing home loan it is known as a refinance. It is exactly as it sounds, you are re-doing your financing. Borrowers will do this to receive a "better deal" or get some much needed help. Their home loan period may be extended lowering the payment or they may apply for a lower interest rate, or to use some cash from the new loan to pay off some other debt or make additions to their home.

What is a home equity loan?

Equity loans are a type of loan that allows a homeowner access to cash based on the present value of their property less the amount currently owed on the home loan and any other conditions stipulated in the home mortgage. Homeowners often apply for home equity loans to pay for expenses such as home remodeling, debt consolidation, college education, and other long-term investments. Typically a lower interest rate on the home equity loan will save the borrower thousands of dollars when it is used to pay off high interest debt like credit cards. In some cases, check with your Tax Advisor, the interest payments may be tax deductable.

What is a home equity line of credit or HELOC?

Home equity lines of credit allow homeowners access to cash on an as needed basis. The big advantage to this will be the outstanding balance is the only amount that accrues interest. HELOCs provide flexibility by allowing borrowers access to money when they need it, if they need it.

What is a second mortgage?

A second mortgage is a type of mortgage refinancing that allows you to acquire a second loan on your home in addition to your first home loan.

What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets home owners convert a portion of the equity in their home into cash. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence.

What is a mortgage lender?

A mortgage lender is any entity, usually a financial institution or bank, but may also be an individual, that provides prospective homeowners with the money to purchase a home and pay off the total amount over an extended period of time. Usually the new home owners are required to pay monthly payments to their lender which include principle, interest, and additional lender fees. Payments may also include taxes and insurance or PMI (private mortgage insurance)

What is the difference between a mortgage broker and a mortgage banker?

A mortgage broker is the middleman who helps match borrowers with lenders based on needs and qualifications. Mortgage brokers arrange more the 80% of all transactions between borrowers and lenders, yet mortgage bankers actually finance and distribute the largest portion of home loans compared to all other lenders.

What does APR mean?

Annual Percentage Rate ( APR ) is the cost of your loan. A lender will only make loans for a profit and the interest rate charged is how they make money. The percentage used to figure out the total cost of your mortgage loan will take into account all fees charged by your lender in addition to your loan principle and interest.

What is a fixed rate mortgage?

A fixed rate mortgage is a home loan with an interest rate that does not change and monthly payments that do not change throughout the life of the loan.

What is the adjustable rate mortgage?

An (ARM) or an Adjustable Rate Mortgage will have monthly payments that change periodically due to fluctuations in market interest rates.

What is an interest-only mortgage?

Interest only mortgages are loans that require the borrower to pay only interest on the principle in monthly installments for a fixed period.

What is an amortized mortgage?

Amortized Mortgages refers to loans that are paid in installments comprised of both principle and interest, and which is paid off (or amortized) over a fixed period of time.

How do you calculate LTV or loan-to-value ratio?

The loan-to-value (LTV) ratio of your home is calculated by dividing the fair market value of your home by the amount of your home loan.

What are lender fees?

These fees usually range anywhere from 2 to 5 percent and may include, but are not limited to, things such as appraisal costs, document preparation, and application costs.

What is the Truth in Lending Act?

The Truth in Lending Act is a federal law that was enacted as part of the Consumer Protection Act. This law requires lenders to reveal all information to the borrower and detail all costs associated with the transaction.