Understanding the Terms of your Mortgage Loan

The home buying process can be a confusing, often overwhelming time for many first-time homebuyers, and the terms and phrases being thrown around certainly does nothing to calm your fears.

Educating yourself as a first-time homebuyer is one of the smartest decisions you can make. If you have an idea of what to expect and when to expect it, you will feel more in control and comfortable during the process, which includes applying for a mortgage loan for a Jacksonville Beach property.

It is important to familiarize yourself with the following terms when applying for a mortgage:

Q: What does the interest rate include?

A: The interest rates offered by mortgage lenders are influenced, sometimes on a daily basis, by the financial markets. The rate you pay for your mortgage may also depend on other factors, such as the type of mortgage loan, the fees for different loans and the points charged by the lender.

Make sure you understand all of the terms surrounding your interest rate. This is the time to go shopping for the best rates, as your interest rate will determine how much home you can afford to spend and the size of your monthly mortgage payments.

Q: What are points?

A: Points are usually disguised as the mortgage lender’s origination fee. One point is equal to one percent of the loan amount.

Keep in mind that paying points at closing will lower your mortgage rate.

Q: How does the Annual Percentage Rate differ from the interest rate?

A: The Annual Percentage Rate (APR) is a combination of the interest rate, the points charged by the lender and other financing costs.

Q: What is the loan term?

A: The loan term is the time during which you will repay the loan. Most loans range from 15 to 30 years.

Q: What is PMI?

A: PMI, or private mortgage insurance, is insurance which must be paid if you are unable to put down at least 20 percent of the sales price of the home. The loan-to-value ratio on your home, which is used when determining PMI, is equal to the amount you owe on your mortgage divided by the market value of the property. 

PMI is part of your monthly mortgage payment, and must be paid until your loan-to-value ratio drops below 80 percent.

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