Mortgage Terminology: L-P
June 26, 2014
In this installment of our Mortgage terms, we are covering L-P. We've tried to break down mortgage terminology into manageable bits A-D and E-J thus far. When it comes to purchasing a new home, you need to understand the lingo your loan officer is speaking. Ultimately this will help you better understand the types of loans out there to help you purchase a home. Late Charge - This is a penalty assessed when your loan payment is received after the payment due date. Lender - This is the bank, mortgage company or mortgage broker offering the loan. Loan Application - This is a document with important information about the purchaser required by the lenders. The information in the application determines whether or not the lender can approve the loan. Loan Application Fee- This is a fee required by the lender in order to process the mortgage application. It is paid regardless of whether the loan is approved or denied. Loan Origination Fee - This is the actual mortgage-processing fee. This is usually a percentage of the purchase price and pays for the work that goes into evaluation and processing of the loan. Lock or Lock-in - This is the lender's guarantee of an interest rate for a set period of time. It is essential once you get your good faith estimate that you lock in the rate as soon as you can so that it does not go up before closing. It is the buyer's responsibility to tell the loan officer to lock the rate. Mortgage Banker - A professional who originates the mortgage loan and funds it with money. Mortgage Broker - A professional who arranges financing for borrowers through lenders rather than using their own money. Negative Amortization - When monthly payments are not large enough to pay all interest on a loan, the principal balance increases. Unpaid deferred interest is added to the loan balance. This occurrence causes the borrower to owe more than the original loan amount. Origination Fee - A fee a lender charges to evaluate and process the loan. PITI - These are the components of a monthly mortgage payments and include principal, interest, taxes and insurance. PMI - Private Mortgage Insurance is usually required on a conventional loan when the down payment is less than 20% of the purchase price. This protects the lender against default. Points (Discount Points) - This is prepaid interest paid to the lender at closing in order to reduce the interest rate on the loan and monthly payments. A point is equal to 1 percent of the loan amount. Prepayment - Payment of any amount toward the principal before the due date. Some people make extra payments to pay off the loan quicker in order to pay less overall interest. Prepayment Penalty - Make sure your loan type does not come with penalties when making prepayments. You may think you are doing something good for yourself by paying off the loan quicker but in fact are getting slapped with penalties. Principal - The non-interest portion of the debt left on the loan. We'll continue with this series to provide you with any other terms that will help make purchasing a home a snap.