Yerkes Upstate
and Only Way Realty
Your SC Results Team!
with multiple offices to serve YOU better
864-209-1864

Terms You Need to Know and Understand


Mortgage TERMS


Loan terms

See also our Glossary of the common terms used in the real estate and mortgage industry.

There are many different types of mortgage terms available to fit everyone's needs. The most common loan type is the fixed rate loan.

Fixed Rate Mortgages

A fixed rate mortgage is when your interest rate and monthly payments will remain the same for the entire life of your loan. Fixed rate mortgages are offered in a variety of terms: 30 and 15 years being the most common. The 15 year term  usually has an interest rate of about 1/2 point lower than the 30 year term. There are also a few variations of the traditional fixed rate mortgage such as a graduated payment mortgage. Graduated payment loans allow you to pay less at the beginning of the loan and then increase your payments as the loan matures. 

Adjustable Rate Mortgages (ARM)

An adjustable rate mortgage (ARM) is another common type of mortgage. These types of mortgages start at a low interest rate and then adjust based on a selected index. There are many different types of economic indicators that can be used as an index: 6 Month treasury, 3yr treasury, 5yr treasury, COFI, FHLBB, or LIBOR. Adjustable rate mortgages offer a variety of repayment terms: 10/1, 7/1, 7/23, 5/25, and 5/5. A 10/1 year adjustable rate mortgage will have the same interest and monthly payment for the first 10 years.

At the beginning of the 11th year, interest rate will be adjusted each year and the payment will change accordingly. A 7/1 year adjustable rate mortgage will have the same interest rate and payment for the first 7 years. Beginning the 8th year, the interest rate will be adjusted every year along with the monthly payment. With a 7/23 ARM, the interest and  payment will stay the same for the first 7 years. On the 8th year, the mortgage rate will be adjusted and remain the same for the remaining life of the loan.  Be sure to check with your Loan Officer to find out the yearly and lifetime cap of your ARM.  There will be a maximum amount the rate can go up per year, and there will be a maximum amount the rate can go up for the life of the loan.

Balloon Mortgages

Balloon mortgages can be offered as 7 year balloons and 5 year balloons. The 7 year balloon mortgage will have the same interest rate and payment for the first 7 years of the mortgage. At the end of the 7th year the loan is due in full and the borrower must either repay the loan or refinance at current rates.  The 5 year balloon mortgage will have the same interest rate and payment for the first 5 years of the mortgage. At the end of the 5th year the loan is due in full and the borrower must either repay the loan or refinance at current rates.


More about Mortgage Types

[Return to Top of page]

 

Interest rates

See also our Glossary of the common terms used in the real estate and mortgage industry.

As you start shopping for a home loan, your first question of each lender will probably be "What's your interest rate? How much are you charging?"

Interest rates are usually expressed as an annual percentage of the amount borrowed. If you borrowed $120,000 at 10% interest, you'd owe interest of $12,000 for the first year. With most mortgage plans you'd pay it at the rate of $1,000 a month. You would also send in something each month to reduce the principal debt you owe - and the next month you'd owe a bit less interest.

When your grandparents bought their home (putting at least half the purchase price down, by the way), their interest rate was probably around 4 or 5%. Rates stayed the same for years at a time. Then in the years following World War II, things became more turbulent. As economic changes speeded up, rates began to change several times a year. By the l980s, lenders were setting new rates on mortgage loans as often as once a week - and they still do today. When inflation hit a high in the '80s, some mortgage loans carried interest rates as high as 17% - and those who absolutely needed to buy, paid that much.

Rates dropped gradually through the 1990s, and by 2000 had reached their lowest rates in decades. Continuing into the millennium, home buyers appear to have the most favorable conditions for mortgage borrowing since their grandparents' days - and without 50% down payments either.

[Return to Top of page]

 

Discount points

A buydown is a way to lower your initial interest rate on your mortgage. You accomplish this by paying additional points on your mortgage. A point is simply one percent of your loan total. The buyer usually has the option to pay as many points as they would like. Each increasing point will lower your mortgage rate a certain level.

Buy-Downs

The payment of additional points in return for a lower mortgage rate

Discount Points

Each discount point equals one percent of your loan amount

[Return to Top of page]

 

Loan to value

Loan-To-Value Ratio is commonly referred to as LTV. The LTV is the relationship between the amount owed on the mortgage and the appraised value (or sale price if it is lower) of the home. A $100,000 home with a $90,000 mortgage, for example, has an LTV percentage of 90%. The remaining balance must be paid with a down payment. In the example above, the required down payment would be $10,000 (or 10%).

Conventional loans require private mortgage insurance (PMI) for borrowers with an LTV ratio of more than 80% (less than 20% down payment). Private mortgage insurance is not tax deductible, even though it is included in your monthly mortgage payment  This insurance premium is lower if your LTV is slightly above 80%, and more expensive the higher your LTV.  A knowledgeable Loan Officer can creatively finance your loan, so that you can avoid PMI, and possibly have tax benefits as well.

All FHA loans  require mortgage insurance.  The mortgage insurance charge for FHA loans is .5% per year of the loan amount and is charged to the borrower every month. FHA loans will also require an upfront mortgage insurance premium of 1.5%.

VA loans, on the other hand, do NOT require PMI.  In fact, lenders are prohibited  from requiring private mortgage insurance on VA loans. However, borrowers are required to pay a one-time funding fee on VA loans.

LOAN-TO-VALUE RATIO

70% or less

If you only need a mortgage of 70% or less of the sale price of the home, your approval process will be relatively easy, and you should be able to get a slightly better rate.

71% - 80%

If you need a mortgage from 71-80% of the sale price of the home, your process should still be relatively simple. You may need to obtain more financial records than if your mortgage was less, but you should be free from the mortgage insurance requirement.

81% - 90% + PMI

For a mortgage from 81-90%, lenders will require private mortgage insurance (PMI) as well as more detailed financial information. The private mortgage insurance may be discontinued on once the LTV ratio reaches a certain point.

95% - 100% + PMI95% - 100% + PMI

If you require a loan of 95-100% of the purchase price of your home, an FHA loan, or a VA loan (if you qualify),  may be a good choice.  You can also check with your Loan Officer and they may be able to help you creatively finance so that you can avoid PMI.

Greater than appraised value

In aggressive markets, some lenders will offer loans totaling 110-125% of the purchase price of the home. Rates on these loans may be likely be substantially higher than conventional loans. Check with different lenders to get the current rates on these types of loans.


[Return to Top of page]

 

Yerkes Upstate Real Estate Services

RESIDENTIAL, INVESTMENT, COMMERCIAL

LAND, FARM, PROPERTY MANAGEMENT
Global Relocation and Referral Services

Personal * Service * Support * Professionalism * Integrity

Providing friendly dedicated service - customized to your needs.

Using state-of-the-art methods to find the right property for you
and/or sell your property at the best possible price.

 

YerkesUpstate.com
 

Yerkes Upstate SC