Don't be intimidated by the jargon used in financing. Here are a number of key terms you'll see frequently in your process.

. Credit report.

A credit report should contain information on all your outstanding loans and repayment history.

. Processing fee.

This is the lender's fee for the assessment of your capacity for repayment as a borrower and will usually be charged upon closing of the loan.

. Annual percentage rate (APR).

The APR expresses the sum total of all your borrowing costs as a percentage interest rate charged on the loan balance.

For Example: After fees, the original interest rate quote of 5.875% might work out to a 6% APR loan, where the interest costs about $6,000 per year for every $100,000 borrowed, and the principal payments are calculated based on the length of the loan term (for example 15, 20, or 30 years).

• Indexes.

Changes in indexes such as the Federal Funds Rate and the Treasury Bill are used to periodically readjust the interest rates in adjustable rate mortgages (ARMs).

. Points.

When lenders are offering lower interest rates, they may charge you a "point," a one-time pre-paid interest fee, calculated as a percentage of the loan. Points are considered part of the cost of credit to the borrower, and part of the investment return to the lender. They may range from 0.25% to 2% of the loan balance, and are usually paid up front.

. Appraisal cost.

An independent appraiser hired by your lender will evaluate the property's value, condition and size in relation to similar recent neighborhood sales. This is useful to the lender because it ensures repayment in case the borrower defaults, forcing them to sell the property.

. Miscellaneous fees.

Various costs will be incurred during the processing of your loan request, such as notary, courier, and county recording fees.

prev | next