Have you ever taken a foreign language before? If so, you may remember the struggle of learning all the different terminology. During the mortgage process, you may find yourself in a similar boat of struggling. When it comes to buying a commercial property or an office building, a mortgage is an important part of the process. With a little bit of practice, you’ll be speaking the language in no time. To help, we have compiled a list of the most common mortgage terms to you will likely come across.
Adjustable-Rate Mortgage (ARM): An adjustable-rate mortgage is a type of loan where the interest rate varies depending on the market rates. For the first period you will get a fixed interest rate. The adjustment(s) will take place at fixed intervals. The initial period can last up to ten years. Following the initial period, the rate will adjust periodically during the life of the loan. The adjustments are based on major indexes such as the 10 Year-Treasury Rate.
Annual Percentage Rate (APR): The annual percentage rate is the effective interest rate that you pay on your loan annually. Usually, APR is expressed as a percentage. If there are two interest rates listed when shopping for a loan, the larger number is always the APR because it includes fees. The smaller of the quoted numbers is typically the actual simple interest charged for the loan.
Closing Costs: Closing costs are fees that you pay for finalizing the loan. Some common fees include appraisal fees, inspections, and legal fees to name a few. Closing costs can cost around 6% of the loan depending on property and location.
Debt-To-Income Ratio (DTI): Debt-to-income ratio is your total fixed, monthly debts divided by your total monthly gross income. Lenders look at this to make sure that you have enough income coming in to be able to pay the loan payments. Lenders, by regulation, must confirm the borrower’s ability to repay the loan.
Equity: Equity is the difference between the value of the property and improvement, and the mortgage loan. As the value of the property goes up over time and the loan decreases, the equity usually increases.
Fixed-Rate Mortgage: Fixed-rate mortgage is exactly as it sounds. The interest is a set interest rate for the entire life of the loan. The rate can range from five years to thirty years.
Refinance: Refinancing is the act of trading the original loan for a new one, usually with a better interest rate. Refinancing is beneficial for the borrower to create a more convenient interest rate or payment schedule. Refinancing may also provide the borrower with an opportunity to take cash out.
Settlement Cost: Before closing the attorneys or title company, involved will meet to settle the final cost that are associated with the loan. These settlement costs are provided to all parties to assist in understanding the closing cost that have been agreed upon.
We know that mortgages can be confusing to understand. Here at TNT Funding Associates, we make the process simple. We work with a huge network of lenders to create a loan that works in your favor. Our team is here to work for you, making the process headache free and making sure you understand everything throughout the whole process. Please don’t hesitate to contact with any of your lending questions.