Today Real Estate, Cape Cod's number one locally owned real estate company, believes that buyers should be educated in all aspects of the real estate transaction.  This list is provided to help people who are buying a house for sale on Cape Cod with definitions of commonly used mortgage lending terms.

Adjustable Rate Mortgage (ARM) - This is a loan where the interest rate adjusts periodically rather than being set for the term of the loan.  The rate changes mean that the borrower's payments will vary over the term of the loan.  Borrowers benefit if the interest rate goes down, but could be faced with increasing payments should the rate increase.

Amortization - Paying off a debt and interest expenses over a set time period with a set number of payments.  An amortization schedule shows each payment of a loan and the portion of the payment allotted to principle and interest.

Annual Percentage Rate (APR) - The periodic interest rate times the number of payments per year, including certain non-interest charges and fees.  The APR can be used by consumers to compare loans of the same term (15 year, 30 year, etc.). Generally included in this calculation are prepaid interest, points, origination fees, and private mortgage insurance.

Application Fee - The fee paid to the lender with the mortgage application to cover the costs of the initial credit report and other initial fees.

Appraisal - Used to determine the market value of real estate, which may be different from the sale price.  An analysis of market data will be completed to determine if the sale price subject property is representative of the property's value.

Balloon Payment - When a loan is not fully amortized over the term of the note, the balance left is referred to as a "balloon payment."  If the Truth in Lending statute applies, the amount of a balloon payment must be stated in the contract.

Closing Costs - Fees paid as part of the transfer of title from the seller of real property to the buyer.  These include attorney fees, recording fees, adjustment for real estate taxes, points and pre-paid interest.

Credit Score - A statistical analysis of the borrower's credit history used to determine risk.  Factors considered include the borrower's payment history, the length of the borrower's credit history, the type of debt, and the borrower's debt ratio.  Three credit bureaus are used:  Experian, TransUnion and Equifax.  Borrower's with lower credit scores may find it more difficult to obtain a mortgage loan or may face higher mortgage rates.

Discount Points - Fees paid to a lender to lower the interest rate on the loan.  A point is equal to one percent of the loan amount.  (One point on a loan of $100,000 would be $1,000.)

Fixed Rate Mortgage - A loan where the interest rate remains the same for the term of the loan.  Fixed rate mortgages usually provide the borrower with fixed monthly payments over the term of the loan.

Floating Interest Rate - When making a mortgage application, the borrower may elect to "float" the interest rate rather than "lock" in at the current rate.  A borrower may elect to do this if rates are expected to decrease in the near future.  If mortgage rates increase, the borrower may need to accept the loan at the higher rate.

Floating Mortgage Points - Like interest rates, the points paid on a mortgage loan also fluctuate.  It may be possible to lock in a mortgage interest rate and float the points, allowing the borrower to pay less in closing costs if the points required for the loan drop.  If points increase, the borrower would pay the higher costs at closing.

Good Faith Estimate (GFE) - An estimate of the fees and costs involved in the mortgage loan.  Lenders are required to provide the borrower with this estimate within three days of the borrower's loan application.  This estimate includes projected closing costs, lender required inspections, property taxes and mortgage insurance.

HUD Settlement Statement - The detailed cost breakdown for the real estate transaction showing credits and fees applied toward both the seller and the buyer.  A borrower has the right to receive this form one day prior to closing and should compare the costs shown with the Good Faith Estimate. 

Interest Rate - The rate of interested paid by the borrower for the use of money borrowed from a lender, usually expressed as a percentage rate over one year.

Jumbo Mortgage - A mortgage loan for an amount exceeding the conventional loan limits.  Fannie Mae and Freddie Mac, government sponsored entities, set the maximum loan amount that they will purchase from the lender.  As these non-conforming loans pose a higher rise for mortgage lenders, the rate charged for these loans is typically higher and a larger down payment may be required.

Loan Origination Fee - The fee charged by the lender for evaluating the loan application and preparing the mortgage loan.

Minimum Down Payment - The amount of money that the borrower will need to put toward the purchase of real estate.  This amount varies depending on the type of real estate purchased and the loan program.  Typically, 20% down on a residential property allows the borrower to avoid paying additional mortgage insurance costs.

Mortgage Broker - An intermediary who works to connect borrowers with lenders.  The Mortgage Broker assesses the borrower's needs and qualifications and works to find the best loan options available from a variety of loan programs.

Mortgage Rate Lock - The lenders promise to the borrower to hold the interest rate and certain number of points for a specified length of time.  Borrowers may be able to lock in the rate when the application is made or when approved for the loan or later. 

Prepayment Penalties - A fee due the lender if the mortgage is paid early.  Not all lenders charge prepayment fees.

Private Mortgage Insurance (PMI) - Insures the lender against losses if the borrower is unable to repay the mortgage loan. 

Title Insurance - Insurance providing protection to the owner of real estate, or to the mortgage lender, against loss due to title defects.

Underwriting - The detailed analysis of the borrowers credit and the real estate used as collateral prior to loan approval.

When you're ready to purchase property on Cape Cod, consult the local real estate experts!  Today Real Estate, with four offices serving all of Cape Cod, is open seven days a week.  There is always a licensed real estate professional available to help with your real estate needs.