A Mortgage Is More Than An Interest Rate
Mortgage packages may include other variables in addition to the interest 
rate. These variables may include points, which are pre­paid interest assessed 
by the lender at settlement. Hence, it may be less expensive to pay a higher 
interest rate with fewer points than to pay a lower interest rate and more points.

But the most important features to consider are the types and the terms of 
mortgage ­­ such as whether it is adjustable, fixed or a hybrid of the two, 
and what the length of the term is, i.e., 1, 3, 7, 15 or 30 years.

Fixed­Rate Versus Adjustable­Rate
The two most common types of mortgages are fixed­rate and adjustable­rate 
mortgages (ARMS). The interest rate with a fixed­rate mortgage remains the 
same for the life of the loan. With ARMS, the rate varies according to 
movements in the financial markets.

Other Mortgage Types
Some mortgages offer fixed rates for a period of time, then adjust the interest 
rate later to fit market conditions. While they usually offer a lower market rate 
to begin with, the interest rate may eventually rise or fall.

A "Builder/Lender Buy­Down" gives the homebuyer an initially discounted 
interest rate which gradually increases to an agreed­upon fixed rate over a 
certain period of time.

"Convertible" mortgages offer the option to change the mortgage type after 
a specified period of time. This allows you to begin with a lower mortgage 
rate, then to "catch up" to your future higher income with a higher rate later.

15­Year Versus 30­Year Mortgages
15­year mortgages allow homeowners to own their home in half the time for 
significantly lower total interest costs, however, a 30­year mortgage has lower 
monthly payments.

Which mortgage is best for you?
First, compare the APR (annual percentage rate) of different mortgages. 
The APR indicates the "effective rate of interest" paid per year, including 
points and other charges, and spreads them over the life of the loan. Next,
compare points and other fees. Finally, analyze the terms of the mortgage. 
Check whether it allows prepayment without a penalty. If it's an ARM, 
compare yearly and "life­of­loan" caps. Then assess the payment schedule 
and determine what best fits your present and future needs.

Refinancing
Refinancing a mortgage is simply taking out a new mortgage to pay off the old 
one. You may wish to do so if rates drop significantly, or if you want to change 
the terms of your mortgage.

Tax Advantages
Because you can write off the interest payments and real estate taxes on a primary residence, owning a home offers tremendous tax savings. These savings may be 
factored in when your loan processor determines the mortgage amount you can 
afford. At the beginning of a loan, the payments are mostly interest, so you have 
larger tax savings than later in the life of the loan, where most of the amount you 
pay is applied to principal. Because of this unique tax break, you may be able to 
afford the home you want sooner than you think.

Mortgage Terms

Annual Percentage Rate (APR): An interest rate reflecting the cost 
of a mortgage at a yearly rate.

Assumability: Taking the loan over from the holder (seller) and becoming 
liable for the repayment.

Balloon Mortgage: A type of mortgage usually used for a short­term, 
fixed­rate loan which involves small payments for a set period of time and one 
large payment for the remaining amount at a time specified in the contract.

Buy Down: A mortgage in which the seller and/or homebuilder subsidizes 
the mortgage by lowering interest rates during the first few years. Payments 
may increase when the subsidy expires.

Caps: Usually found on adjustable rate mortgages, these limit the amount 
that the interest can rise.

Down Payment: Money paid to make up the difference between the 
purchase price and the mortgage amount.

Escrow: A neutral third party who carries out the instructions of both the 
buyer and the seller to handle all the paperwork of closing. Escrow may also 
refer to an account held by the lender into which the homebuyer pays money 
for tax or insurance reasons.

FHA Loan: A loan that is insured by the Federal Housing Administration 
and is open to all qualified home purchasers.

Origination Fee: Fee charged by a lender to prepare loan documents, 
make credit checks, inspect and sometimes appraise a property; usually 
computed as a percentage of the loan.

PITI: Principal, interest, taxes and insurance. Also called monthly housing 
expense.

Points: Pre­paid interest assessed at closing by the lender. Each point is 
equal to 1% of the loan amount.

Principal: The part of your mortgage payment that directly pays off your 
loan. This does not include the interest, taxes or insurance that may be a part 
of your loan payment.

Title: Document which gives evidence of ownership.

Refinancing: Is simply taking out a new mortgage to pay off the old one. 
You may wish to do so if rates drop significantly, or if you want to change the 
terms of your mortgage.

VA Loan: Long­term, low­ or no­down payment loan guaranteed by the 
Department of Veterans Affairs. Restricted to individuals qualified by military 
service or other entitlements.

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