Mortgage Terms You Need to Know

Rate

• Check the current mortgage rates and how their current trend -- that is, are they low or high compared to what they were during the last week/month/year?
• Ask your lender whether your mortgage is fixed-rate (FRM) or adjustable-rate (ARM). If you are borrowing an adjustable rate mortgage, ask what index your rate is tied to, and how it affects your payments.

Points

Points, as defined in our financial dictionary, are charges levied by a mortgage lender, usually paid at closing, where one point equals 1% of the value of the loan. You are required to pay points as part of the loan agreement, or to lower your monthly payment/interest rate. When negotiating a loan, check the current trends on points in your area. Additionally, ask the lender to quote you the points as a dollar amount, making the actual loan amount easier to understand.

Fees

In addition to the interest and points you pay when taking out a mortgage loan, there are always numerous fees involved.  You can expect to pay a few thousand dollars solely for fees, although this is one area where negotiation works well.  Some of the most common fees are:

• Credit report fee - In order to obtain your credit report, you are most often charged a nominal fee of approximately $30.
• Appraisal fee - The appraisal fee pays for a company to estimate how much the property is worth.
• Application or Origination fee - The fee paid to the lender to process your application.
• Lock-in fee - The fee you pay a lender if you wish to have them hold a particular interest rate for you while your loan is approved.
• Attorney's fees - Fees paid to an attorney if you wish to use one. An attorney can help you with contractual agreements and make sure the buying process is fair and legal.

Closing Costs

All of the fees noted above are included in what are called closing costs. We define closing costs as expenses that buyers incur in the transfer of ownership of a property. In addition to the abovementioned fees, other costs such as document preparation and money transfers are included in closing costs. You should typically expect to pay roughly 5% of the final purchase price as closing costs, so plan accordingly.

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