| Any time you get involved with a loan or any type of refinancing it is important to understand the process as a whole as well as the elements within the process. Those of us at Florida No Cost Mortgage are available to work with you and keep you informed. Here are some helpful explanations pertaining to No Cost Loans. |
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically according to the movements in a preselected index. Technically, ARMs do not include mortgages where the payments change fo other reasons ,such as buydowns, although the term is often used in this broader sense.
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Amortization Schedule
A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance.
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Annual Percentage Rate (APR)
The total yearly cost of a mortgage stated as a percentage of the loan amount; includes the base interest rate, primary mortgage insurance, and loan origination fee (points).
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Closing Costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called "settlement costs."
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Down Payment
The part of the purchase price which the buyer pays in cash and does not finance with a mortgage.
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Equity
The difference between the market value of a property and the homeowner's outstanding mortgage balance.
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Index (Also called "Rate Index")
A regularly published rate, independent of the lending institution, that measures the prevailing cost of funds, and is used periodically with the margin to set AML accrual rates. Common indices are the 1-Year Treasury Security and FHLBB's Cost of Funds.
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Loan-To-Value Ratio (LTV)
The loan-to-value ration (LTV) is the original loan amount divided by the lower of the sales price or the appraised value.
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Margin
The amount the lender adds to the index to determine the fully Indexed Accrual Rate. Usually the margin is a fixed percentage thoughout the loan. (Also called "Spread")
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Negative Amortization
If the payments are too small to cover the interest due on the loan, the remaining interest owed is added to the outstanding loan balance, causing "negative amortization." The loan gets bigger, rather than smaller as it does with positive amortization. Interest is then charged on the deferred interest in future months. (Also called "Deferred Interest.")
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No Cost Mortgage
This type of mortgage converts upfront costs to costs paid over time. By choosing a loan with a higher rate than the base rate, the lender is paid a Yield Spread Premium rather than the traditional points paid to a lender. The funds from the Yield Spread Premium are then used to pay some or all of the borrower’s closing costs with a few exceptions. Some of these costs include attorney and underwriter fees, title insurance and more. When dealing with a refinance, utilizing a No Cost refinance offers the fastest method for generating immediate interest rate and payment savings without having to deal with the upfront investment of closing costs. |
Origination Fee
A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount, or points.
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P&I
Principal and interest.
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Points
A one-time charge by the lender to increase the yield of the loan; a point is one percent of the amount of the mortgage.
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Principal, Interest, Taxes and Insurance (PITI)
Principal, Interest, Taxes and Insurance are components of a mortgage payment.
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Rate Caps
A limit on the amount the interest rate charged to the borrower can be changed. Usually there are two caps. One is the "Period Cap" which limits the amount the interest rate may change at the end of each adjusted period. The second it the "Life of Loan" (LOL) cap, which sets the highest interest rate that can ever be charged. The LOL cap is often specified as "X"% above either the initial rate or the fuly-indexed accrual rate. (Also called "Interest Rate Caps.")
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Title
A legal document establishing the right of ownership.
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Truth-In-Lending (TIL)
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other changes.
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