F.A.Q

Here is part II of our F.A.Q section continued from last week.

What is the difference between a fixed rate and adjustable rate mortgage?

With a fixed rate mortgage, the interest rate and payment remains constant over the life of the loan. Whereas with an adjustable rate mortgage, the interest rate can either increase or decrease based upon the terms of the loan. This could cause the monthly payments to increase in order to have the loan paid in full by maturity.

What is a convertible mortgage?

A convertible mortgage allows you to convert your adjustable rate mortgage to a fixed rate mortgage for a flat fee during a specific time frame. This fee can range from $250 - $500 per lender.

What is a balloon mortgage?

A loan with a fixed rate payment for the first five to fifteen years of the loan, then a lump sum payment is due on the balance of the loan at a specified date when the balloon loan matures.

What is a conventional loan?

A mortgage not guaranteed by VA or insured by FHA, FMHA or State Bond Agencies.

What is a jumbo loan?

A conventional loan that exceeds the maximum agency (Fannie Mae, Freddie Mac) mortgage amount guidelines for a conventional loan. (Currently $417,000 for U.S. originated loans)

What is PMI?

This stands for Private Mortgage Insurance. On a conventional loan PMI is required if you borrow over 79.99% of your appraised value. This protects the lender against financial loss if the loan is defaulted. Many borrowers refinance in 2-4 years to use their equity to avoid paying PMI. Other loan programs are available to avoid paying PMI.

What is mortgage life insurance?

This insurance would pay the balance owed on your mortgage home loan in the event of your death during the term of the mortgage. This is currently not offered for the majority of lenders; however your insurance agent should have some similar options.

What is hazard insurance?

This represents the insurance that protects your investment in your home. It provides compensation to the insured in case of property loss or damage (i.e. fire, hail, or tornado etc.)

What are points?

Points represent an origination fee charged by the lender and loan discount points sometimes charged on the note rate to lower the interest rate.

What is a buy-down?

A fee paid to lower the interest rate on a mortgage. The buyer, seller, or any other interested party may pay it. A permanent buy-down would lower the rate for the entire term of the mortgage, while a temporary buy-down lowers the rate for a specified shorter term, generally 3 years or less.

We at Professional Mortgage Group, Inc. hope this information is helpful. You can view the full list on our website www.pmg-inc.net. Next Tuesday will bring the 3rd and final installment of these F.A.Q's. Be sure to check back!

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"Your Columbia, MO Mortgage Broker"