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5 Uncommon Mortgage Terms You Need to Know

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5 Uncommon Mortgage Terms You Need to KnowWhen it comes to finding a new home, there are lots of complex ratios, terms, and contracts that you’ll encounter – and at times, it’ll feel like you’re trying to navigate a minefield. Here are five mortgage terms you may not encounter regularly that you’ll need to know when buying a home.

Escrow: Money Held In Trust To Pay Taxes

An escrow account is a bank account that your lender maintains on your behalf. When you close your mortgage, you’ll need to deposit a certain percent of your annual property taxes into the escrow account, which your lender will hold in trust and use to pay your property taxes.

PITI: How Your Lender Calculates Your Monthly Payments

Your lender uses a specific formula used to calculate exactly how much money you need to pay your lender each month. Each month, your mortgage payment will include portions that go toward your principal loan amount (P), your interest payment (I), your property taxes (T), and your homeowner’s insurance (I). If you have private mortgage insurance, it’ll be included with this PITI payment.

Rate Buydown: Lowering Your Interest Rate With A Larger Down Payment

A rate buydown, also known as a discount point, is a chunk of your mortgage interest that you pre-pay in order to get a lower monthly interest rate over the life of the loan. Each point you buy reduces your interest rate by a small amount.

Loan Estimate: What Your Lender Must, By Law, Give You

A loan estimate is a form that your lender is required to give you when you apply for a mortgage, as per the Truth in Lending Act. Your loan estimate will include your estimated costs of carrying the loan – including monthly payments, interest rates, and processing fees. Loan estimates allow you to compare terms and rates across different lenders.

Loan-To-Value: Determining How Much House You Can Afford

Your LTV (loan-to-value) ratio is a ratio that is used to calculate the amount of equity you have in your home and to assess your risk as a borrower. Typically expressed as a percentage, your LTV is determined by dividing the total amount of your mortgage loan by the property’s fair market value. Borrowers generally prefer to see lower LTV ratios.

Mortgages contain a variety of legal terms that can be challenging for the uninitiated to understand. But with a qualified mortgage advisor on your side, you’ll have no difficulty navigating mortgage contracts and finding the right mortgage for you. Contact your local mortgage professional to learn more.

How to Smartly Leverage Your Home Equity

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How to Smartly Leverage Your Home EquitySo you’ve been a homeowner for some time. You’ve been faithfully paying off your mortgage for years, and you have a fair bit of equity built up in your home – and that makes you proud. But now, you’re wondering what good equity is if you’re not using it.

How do you actually use home equity? And how do you leverage it to get a high return for low risk? Here are just a few options you may want to consider if you’re looking for something to do with your equity.

Use A Home Equity Loan Or HELOC To Pay Off High-Interest Debt

If you have a certain amount of money invested in your home, you can borrow against that investment by taking out a home equity loan or a Home Equity Line of Credit (HELOC). A home equity loan is ideal for borrowing a large amount of money for a specific purpose, whereas a HELOC works much the same way a credit card does – you can use credit as needed, then pay back what you owe. And if you have a lot of high-interest debt, one of these vehicles could be a great way to pay off your creditors – while it may seem like borrowing from Peter to pay Paul, you actually save thousands of dollars in interest rates by paying off high-interest debt using a lower-interest HELOC or home equity loan.

Buy An Investment Property With A Home Equity Loan

If you’ve been looking to enter the real estate investment market but haven’t had the liquid funds for a deposit, leveraging your home equity in the form of a loan can get you into the landlord game quickly and easily. This is a smart move because while you are taking on more debt, you’re doing so in order to create a new income stream. Ideally, you’ll want to buy a duplex or a home with a granny suite so that you can maximize your investment by renting out more than one dwelling space.

Downsize To A Smaller House And Invest The Difference

Perhaps you’re living in a large house that has seen its value appreciate in recent years, and you’re looking to move in the near future. Selling your large home and moving into a smaller, less expensive home is a great way to simply turn your home’s equity into cash – cash that you can invest.

Leveraging your home equity can be a smart move if it’s done with a larger goal and a solid strategy in mind. But when done irresponsibly, taking equity out of your home can have severe consequences. Talk to your local mortgage professional today to learn more about smart options for leveraging home equity.

What’s Ahead For Mortgage Rates This Week – May 9, 2016

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Closing Paperwork: How to Read and Understand the Truth-in-Lending Disclosure Statement

Mortgage rates fell across the board last week according to Freddie Mac’s Primary Mortgage Market Survey. Other economic news included reports on construction spending, public and private sector employment and national unemployment.

Construction Spending Grows in March

The Commerce Department reported that the growth rate for construction spending fell in March to 0.30 percent/Analysts expected a reading of 0.70 percent based on February’s upwardly revised growth rate of 1.0 percent. Construction spending was propelled by a 1.50 percent increase in residential construction spending; this is good news for would-be home buyers who’ve been shut out of the market due to high demand and low inventories of available homes.

Housing market analysts have repeatedly said that new home construction is the answer to short supplies of homes and high buyer demand. Year-over-year, construction spending is up 8.0 percent overall; residential construction spending grew by 7.60 percent year-over-year.

Mortgage Rates Dip

Average mortgage rates were lower last week. The rate for a 30-year fixed rate mortgage fell by five basis points to 3.61 percent; the average rate for a 15-year fixed rate mortgage was three basis points lower at 2.86 percent and the average rate for a 5/1 adjustable rate mortgage dropped six basis points to an average of 2.80 percent.

While any drop in mortgage rates is welcomed by home buyers, the high demand for homes continues to drive prices up and has raised concerns about affordability of single-family homes in many communities.

Jobs Growth Slows

The national unemployment rate held steady at 5.0 percent in April, but job growth slowed in public and private sectors. ADP reported private sector jobs increased by 156,000 jobs as compared to 194,000 jobs added in March. According to the Bureau of Labor Statistics, Non-Farm Payrolls increased by 160.000 jobs as compared to expectations of 203,000 jobs added and March’s reading of 208,000 jobs added. Non-Farm payrolls measure public and private sector job growth.

New jobless claims rose by 17,000 to 274,000 new claims, but remained below the benchmark of 300,000 new claims for 61 consecutive weeks. Analysts projected that new claims would grow by 265,000 new claims based on the prior week’s reading of 257,000 new claims. The less volatile four-week rolling average of new jobless claims indicated that 258,000 new claims were filed. The labor force participation rate dropped from 65 percent to 63 percent in March. Retiring baby boomers contributed to some but not all of this workforce decline.

What’s Ahead

This week’s scheduled economic news includes weekly reports on mortgage rates and new jobless claims along with a report on consumer sentiment.

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