Which mortgage-related words and phrases are important to know?

Mortgage terminology can be confusing, here’s a list of some common terms to keep in mind:

CLOSING COSTS

The costs you’ll pay at the time of purchase. These include things like the origination fee (usually 1% of your loan amount), commitment fee, appraisal fee, attorney fee, title insurance, homeowners insurance, recording fees, flood certification fee, etc.

DOWN PAYMENT

The amount of the purchase price that you’re paying up-front. Typically, lenders require a specific down payment in order to qualify for the mortgage.

PREPAYMENT

Making early or extra payments towards the principal. Prepayment can shorten the length of your mortgage and lower the total amount of interest you pay over time.

PRINCIPAL

The amount of money that you borrow for your mortgage.

EQUITY

The difference between the value of your home and what you still owe on your mortgage loan.

HOMEOWNER’S INSURANCE

AKA “hazard” insurance. Before you close on your mortgage, you will need to purchase a one year homeowner’s insurance policy with the minimum dwelling coverage of your loan amount.

LOAN TO VALUE

The percentage of your loan amount divided by your purchase price or appraised value, whichever is the lesser amount. Example: $150,000 loan amount divided by $175,000 purchase price/appraised value = 86% Loan-to-Value (LTV)

PRIVATE MORTGAGE INSURANCE

Insurance that protects the lender if you stop making payments on your loan. Required for loans with less than 20% down payment and the premium is paid in your escrowed portion of your monthly payment.

ESCROW PORTION OF YOUR PAYMENT

The monthly amount that is equivalent to 1/12th of your annual property tax bill and 1/12th of your homeowners insurance premium that is added to the principal and interest portion of your payment. If you borrow more than 80% of your home’s value/purchase price, you’ll be required to pay a monthly premium for Private Mortgage Insurance (PMI) in your escrow payment. Luckily, Credit Union PMI rates are significantly lower than other mortgage providers!

ORIGINATION FEE

The origination fee for a mortgage loan is part of the closing costs to be paid by the Buyer and is typically 1% of the loan amount. Origination fees are usually broken down into mortgage points, which are expressed as a percentage of the loan amount. So if the loan amount is $100,000 and theres a $1,000 origination fee, you are paying a 1% origination fee/point.

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