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FAQs

What is a mortgage?
A mortgage (also known as a home loan) is a legal contract between a lender and a borrower (the home owner). The property itself is used as collateral to secure the loan. If the borrower does not make the agreed-upon home loan payments, the lender can take possession of the property, known as repossession.

What is a mortgage refinance?
A refinance, sometimes shortened to Re-Fi, happens when the borrower uses the money from a refinanced loan to pay off an existing home loan. Borrowers might refinance to extend their home loan period, to apply for a lower interest rate in order to reduce their payments or the loan term, or to take some money out of their home’s equity or value.

What is equity?
Equity refers to the ownership interest the borrower accrues in the property as the loan is paid down.

What is a home equity loan?
A home equity loan is a type of loan that allows the homeowner to obtain a cash loan based on their property’s current value minus the mortgage amount still remaining to be paid off. Homeowners sometimes apply for home equity loans to pay for expenses like home remodeling, consolidation of debt, college education, or other long-term investments.

What is a home equity line of credit, or HELOC?
A home equity line of credit, or HELOC, gives the homeowner access to an open line of credit, where only the outstanding balance accrues interest. HELOCs provide flexibility by allowing borrowers access to money on an as-needed basis.

What is a second mortgage?
A second mortgage is a type of mortgage refinancing that allows you to acquire a second loan on your home, subordinate to your first home loan. A second mortgage, such as a home equity loan, often is at a higher interest rate.

What is a reverse mortgage?
A reverse mortgage is a loan that allows the homeowner to transfer some of their home equity into cash. Compared to traditional home loan mortgages, reverse mortgages do not require the borrower to repay their home loan until the homeowner no longer lives primarily at that residence, although he or she still owns the residence.

What is a mortgage lender?
A mortgage lender is a financial institution that provides prospective homeowners with funds over a long-term to pay off their home loan mortgage. Borrowers must pay monthly installments to their lender that include principle, interest, and any additional lender fees.

What is the difference between a mortgage broker and a mortgage banker?
A mortgage broker is an intermediary who helps match borrowers with lenders based on their needs and standards. Mortgage brokers arrange about 80% of all transactions between borrowers and lenders. The mortgage bankers are the ones who actually finance and distribute the largest portion of home loans compared to all other lenders.

What is a mortgage principle?
The mortgage’s principle refers to the amount of loan money that the homeowner borrows, not including the interest.

What does APR mean?
Annual Percentage Rate ( APR ) is the percentage used to figure out the total cost of your cash advance loan by taking into account all fees charged by your lender in addition to your loan principle and interest.

What is a fixed rate mortgage?
A fixed rate mortgage is a home loan with set, consistent interest rates and monthly payments that do not change during the life of the loan.

What is an adjustable rate mortgage?
An adjustable rate mortgage, often called an ARM, has monthly payments that change periodically due to fluctuations in market interest rates.

What is an interest-only mortgage?
An interest-only mortgage is a loan that requires the borrower to only pay the interest on the principle in monthly installments for a fixed period. By only paying the interest, little equity accrues in the property.

What is an amortized mortgage?
An amortized mortgage refers to a loan that is paid in installments made up of both principle and interest, and which is paid off (or amortized) over a fixed period of time.

How do you calculate LTV or loan-to-value ratio?
The loan-to-value (LTV) ratio of your home is calculated by dividing the fair market value of your home by the amount of your home loan.

What are lender fees?
These fees usually range between 2 to 5 percent of the loan. They may include, but are not limited to, things like the appraisal cost, document preparation, and application costs.

What is the Truth in Lending Act?
The Truth in Lending Act is a federal law that was enacted as part of the Consumer Protection Act. This law requires lenders to reveal all information to the borrower and detail all costs associated with the transaction. See more at http://www.fdic.gov/regulations/laws/rules/6500-200.html 

Is there a minimum down payment for a mortgage?
Down payments usually require between 5 and 20 percent down, for conventional loans not backed by a government agency. Eligible veterans may have no-down-payment options for a VA mortgage.

Do I need an attorney to purchase a property?
It’s up to the homebuyer to decide whether to utilize their legal counsel in the purchase of property. New Mexico does not require an attorney to be involved.

What is a rate lock?
A rate lock protects the homebuyer from fluctuations in the financial market that could affect your interest rate. The homebuyer can choose to lock or not lock the interest rate range, which sets that interest rate available to you for a set period of time.

What’s the difference between “locking” and “floating?”
Locking sets the range of pricing but doesn’t guarantee that a specific rate will apply. It gives a specified period of protection from financial market fluctuations in interest rates. Floating, not the same as locking, means the rate will fluctuate with the up and down movements of the market. However, if interest rates decrease during the period of protection, the homebuyer has the option of locking in at a lower level of rates.

What is PMI?
Privage mortgage insurance (PMI) is required when the homeowner has less than 20% equity (or down payment) on the property. PMI offers protection to the mortgage lender if the homeowner is unable to make loan payments and defaults on the loan.

What’s the difference between pre-approval and pre-qualified?
Being pre-qualified by a mortgage lender lets the borrower know the estimated amount they can borrow. Typically, the person provides their income, their amount of debt, and the amount available for down payment to the lender, who then can give the person an estimate of the value of home they can afford. Being pre-approved gives the potential homeowner the specific and maximum loan amount that can be borrowed. By being pre-approved, the buyer may have more negotiating power in a hot real estate market versus a buyer who is only pre-qualified.