Basic Mortgage Terms Every Mortgage Shopper Should Know
The mortgage industry certainly has its fair share of “mortgage lingo” that can sound a bit foreign to those not in the lending or real estate business. Sometimes loan officers can have a conversation with potential home owners and speak way over their heads, while the loan officers never realize that’s what they’re doing. Especially very early on in the process when potential applicants begin shopping for a mortgage and getting information on financing. Here are a few basic terms you need to know before you pick up the phone or send that email.
APR. APR stands for Annual Percentage Rate. When you shop for rates and request a formal rate quote, you’ll also see the APR. The APR is described as the cost of money borrowed expressed as an annual rate. It is calculated using the note rate on the mortgage plus associated finance charges. It’s not what your payment will be based upon.
Term. The term is how long the loan will amortize, or pay down. Most loan terms today are for 30 years but loan terms can be as short as 10.
Point. A point, or discount point, is a form of prepaid interest to the lender and can be used to lower the interest rate on a mortgage. It’s completely up to you if you want to pay a point or not so you should compare the cost of a point with the lower payment it provides.
Origination Fee. An origination fee is expressed as a percentage of the loan amount and is a lender charge to offset the cost of producing, processing and approving a mortgage loan application.
Lender Fees. Lenders are responsible for their own fees and quote them along with an interest rate quote. They aren’t as responsible for other third party charges but they will provide a Cost Estimate when requested.
Lock. Interest rates can change from day to day and will continue until the applicant requests an interest rate lock. Lenders have slightly different requirements for a lock but the primary one is to have a completed loan application on file.
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