Description: Know the answers to some frequently asked mortgage questions and make yourself more knowledgeable about mortgage transactions.
Some frequently asked mortgage questions and their answers
Buying a home that is within your means is not easy. You need to shop around a lot, compare loan options and choose the loan that is right for you. You need to compare the loan terms, interest rates, APRs and other fees before coming up with a decision. While you’re on your way to buy your dream home, some mortgage-related questions might arise in your mind. These questions are commonly known as frequently asked questions (FAQs) and homebuyers often make these queries to the lenders or mortgage brokers. Some of these FAQs and their answers are given below:
What is Truth in Lending Disclosure and why should I get it?
The Truth in Lending Disclosure is planned to offer you all the details on your loan so that you can compare these costs with similar loan programs offered by other lenders.
What is the APR (Annual Percentage Rate)?
The APR (Annual Percentage Rate) is the cost of borrowing credit and it is expressed as a yearly percentage. Since you might be paying discount points and other prepaid finance costs during closing, the disclosed APR is usually higher than the nominal rate or interest rate on your loan. The Annual Percentage Rate on a particular loan can be compared with the APR of other similar loan programs and it works as a tool to compare loan options.
Why does the APR differ from the interest rate?
The APR doesn’t only include the interest rate but other costs like prepaid interest, mortgage insurance as well as other fees. As a result, the Annual Percentage Rate is always higher than your interest rate.
What is the amount financed?
The amount of credit offered to you less the prepaid finance charges is the amount financed. Prepaid finance charges incorporate items paid during or prior to closing like discount or commitment fees (points), loan origination fees, preliminary mortgage insurance premium and adjusted interest. The amount financed would always be less than the amount that you requested for since it signifies a net amount. If you requested for $60,000 and the prepaid finance charges amount to $3,000, the amount financed would be $57,000.
Does this suggest I would get a smaller loan than I requested for?
No. If your loan is sanctioned in the amount applied for, you get credit for buying your home or refinancing for the total amount for which you asked for. In the aforesaid example, you would get a $60,000 loan and not $57,000.
What is the finance charge?
It is the cost of credit and expressed as a dollar value. It is the overall amount of interest worked out at the interest rate throughout the loan term together with prepaid finance charges and the overall amount of mortgage insurance needed for the loan term.
What is the total of payments?
This number stands for the total you’d have paid if you make the necessary minimum payments for the whole repayment term. This includes interest, principal and mortgage insurance premiums but doesn’t incorporate property insurance premiums or real estate taxes.
My Truth in Lending Disclosure stipulates that if I make a premature repayment of the loan, I wouldn’t be allowed to get a reimbursement of a portion of the finance charge. What does this signify?
This implies that you would be asked to pay interest charge for the time period for which you utilized the money offered to you. Your prepaid finance charges are not usually reimbursable nor is any interest that you have already paid.
What is filing fee?
This fee is a ballpark figure of the cost of registering your legal documents like deed of trust, mortgage deed and other documents related to your transaction. The fee would be charged at the time of closing.
