This is the general information of your loan. It is best to thoroughly look over this to make sure that everything is correct.
If anything is incorrect, the earlier you fix it, the easier it will be to fix it. Make sure your loan type is right, there are major differences between an FHA loan and a CONVENTIONAL loan (that I will be covering in other articles) and you need to make sure that you are applying for the right one.
At the very top of this section you see the box “Can this amount change after closing?”. This is in reference to certain loans like Adjustable Rate Mortgages or Interest only loans in which things can actually increase after closing.
The loan amount is the actual total of what you will be borrowing from the bank. This includes all of the costs that you may have rolled into your loan. The loan amount can sometimes have a sticker shock if your Loan Officer hasn’t fully explained everything prior to this. When doing a new home loan there will always be costs and these costs will be added onto your loan amount unless you have paid for them all outside of the loan.
The interest rate, the thing every one is talking about, the news the radio, your grandma. The interest rate determines how much you are paying the bank in order to borrow money. Currently in late 2016 the Interest rates are going up but are still incredibly low compared to what we have seen historically. Make sure that the rate here is the rate you were quoted. If you have any questions make sure to ask your loan officer.
Monthly Principle & Interest:
For those of you with a Fixed Rate loan, you will be paying a set monthly Principle and Interest (P&I) payment for the life of your loan. The principle is the amount of what you pay that goes towards paying off the loan on your home. The interest you pay is based on the Interest Rate from above. In the beginning your payments go mainly to Interest and a little bit to Principle. Over time more and more of your monthly P&I will go towards Principle and Less toward Interest rate, though the amount you pay monthly to P&I is the same through out your loan, this is called Amortization.
A prepayment penalty is a charge for paying off your loan early. This can be through a sale, or refinance or just paying it off. Banks used to charge prepayment penalties in order to maximize profits. If you were to go out and get a low initial upfront rate loan , that adjusts higher after a few years, the bank wants you to be in that loan when the rate goes up. If you are going to refinance the loan before the bank starts making that higher interest rate, the bank wants to make that back. That’s what a Prepayment penalty is, a way to discourage you from refinancing, or paying off your loan early which reduces the banks profits. Most loans these days , especially fixed interest rate loans do not have pre payment penalties.
This, like Prepayment Penalties have largely become a thing of the past for the majority of borrows. A balloon payment allows you to make low payments early on in the loan , and in turn at some point later in the loan you are required to pay off the lump sum of what’s still owed on the loan. In the past borrowers would refinance this lump sum before it was due, thereby getting a lower payment on their home than they would have had on a more conventional loan. The problem with this is that if home prices drop, or you lose your job you could be stuck with no option to refinance and have to pay back a large lump sum.
To Be continued…
As always if you have any questions feel free to comment here, email me or call me directly.