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Some common refinance terms to help
you in your refinancing experience:
Adjustable Rate Mortgage
Also known as a variable
rate mortgage. The interest rate on these mortgages changes
periodically.
Adjustment Period
This is the length of time
for which the interest rate is fixed on an adjustable.
Therefore if the adjustment period is six months, then the
interest rate will remain fixed for six months, after which
time it will adjust.
Amortization
A gradual paying off of a
debt by periodic installments which pay principal and
interest.
Annual Percentage Rate - APR
The effective rate of
interest for a loan per year. This rate is typically higher
than the note rate because it takes into account closing
costs. This is one way to compare loan programs offered by
different lenders. Caution: the APR is sometimes computed
differently by different lenders and can be misleading.
Closing Costs
Expenses incurred by the
buyer and seller in a real estate or mortgage transaction.
There are two types of costs : recurring and non recurring.
Non-recurring costs are one
time transactional costs which include
Recurring fees are costs
associated with owning the property and they recur month
after month. These costs may include hazard insurance,
interest, property taxes, mortgage insurance (PMI), and
association fees. A pro-rated amount of these fees may have
to be paid at closing including
Convertible
ARMS
Some variable loans come
with options to convert them to a fixed loan based on a
pre-determined formula, during a given time period. For
example the 1-year bill adjustable may be converted to a
fixed during the first five years on the adjustment date.
The means that you could convert during the 13th, 25th,
37th, 49th and 61st months of the loan.
Equity
The difference
between the amount owed on the loan and the current purchase
price of the home or property.
Loan origination fee or
points
Charge by a lender or
broker connected with originating a loan. This is different
from discount points which are used to buy down the rate of
interest.
Loan to Value Ratio (LTV)
The loan amount divided by
the value of the property.
Prepayment
Full or partial payment of
the principal before the due date. This might occur if the
borrower makes extra payments, sells the property, or
refinances the existing loan.
Principal
The outstanding balance on
a loan.
Refinancing
Repaying an existing loan
from the proceeds of a new loan on the same property.
Second Mortgage
A
subordinated lien, created by a mortgage loan, over the
amount of a first mortgage. Second mortgages generally carry
a higher rate than a first mortgage since they represent a
higher risk for an investor.
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