Andres Navarro asked:


Owning a home is a huge responsibility overall, but the biggest single homeowner responsibility is managing the mortgage payment. Mismanage your mortgage and you could risk not being a homeowner anymore. (Yikes!) That’s why it’s so important that you avoid the following mistakes when choosing a mortgage:

#5 – Leaping before looking.

It’s no secret that mortgage lenders weigh a potential lendee’s credit history heavily when deciding whether to offer the lendee a mortgage loan. Still, countless people meet with mortgage consultants without knowing where they stand credit-wise. Don’t do it. If your credit isn’t up to par, the meetings will be in vain because it’s highly unlikely the mortgage consultants would be able to offer you an affordable mortgage that won’t bite you in the buttocks in a few years; what’s worse is that, by meeting with various mortgage consultants, you will put unnecessary inquiries on your credit report—which reflect negatively on your credit! So, the lesson here is that the first step in obtaining a mortgage loan is to order your credit score and learn your what your credit rating is. Next, you do one of the following: (a) meet with a mortgage consultant if your credit is in good shape or (b) use your credit report to determine how you can improve your credit score and work on bettering it.

#4 – Following the leader.

Mortgages are often perceived to be complex and confusing. As a result, many people simply “do what they’re told” rather than learn what’s best for them and comparing that to the direction given by a mortgage consultant. Don’t be mindlessly herded towards a specific decision like that. Now, that’s not to say that you shouldn’t listen to your mortgage consultant, just that you should be knowledgeable enough to ask questions about the suggested option and other options. Make sure that you understand the “why” as well as the opportunities and risks of all the options you’re considering.

#3 – Signing blind.

Many homeowners stop asking questions as soon as they get word they’ve been approved for a mortgage; they forego delving into the details of the mortgage because they’re so elated about being approved. Don’t be that person! Take the time to discover and understand the terms of your mortgage before you sign on the dotted line. Review the Good Faith Estimate (GFE) statement

#2 – Maxing out mortgage limits.

Many homebuyers meet with a mortgage consultant and obtain a mortgage pre-approval. Then, they go out and look for a home based on how much they’ve been pre-approved for; they take the pre-approval amount to be what they can afford but in reality, that amount actually represents how much lenders are willing to loan you. So, as a general rule, remember that it’s never good to max out your mortgage limit. Stay conservative when shopping for homes. In fact, use an affordability calculator to determine how much of a mortgage loan you can handle without having to pinch pennies every month. Do this before you start home shopping. That way, you won’t be tempted to buy beyond your means.

#1 – Settling instead of bargain hunting.

Two mortgages may look alike, but that’s not necessarily the case. So as you’re comparing mortgage options, don’t just look at mortgage rates and the mortgage loan type. In addition to the mortgage rate and type, you should also compare mortgage terms, mortgage point options, mortgage underwriting fees, and mortgage broker fees. When you compare two or more loans side-by-side, you’ll see some clear-cut differences.

Don’t just avoid one of the common mortgage mistakes above; avoid them all. If you do, you will be able to find a manageable mortgage, and not only become a homeowner, but stay one!

Aaron Crawford asked:


Acceleration – This refers to a lender’s right to request immediate payment of the balance of the loan when the borrower defaults or by using a stipulation from a Due on Sale Clause

ARM / Adjustable Rate Mortgage – A mortgage that has an interest rate that is periodically adjusted. This adjustment is based off of criteria from an agreed upon index and is also called a variable rate mortgage.

Amortization – Mortgage split into periodic, equally sized payments so that at the end of the agreed upon mortgage period the balance is paid.

APR / Annual Percentage Rate – Expression of the yearly rate of the mortgage measured by mortgage’s full cost including all expenses and fees.

Appraisal – A documented official estimation of a property’s value.

Assessment – Tax on a property that serves a specific purpose, like sewers for example.

Assumption – The agreement between a buyer and a seller in which the buyer is taking over payments from the seller on the seller’s existing mortgage.

Balloon Mortgage – This is a loan whose amortization schedule exceeds the length of the mortgage. A final (often large) balloon payment is paid at the end of this end of this extended period of time.

Bridge Loan – A secondary trust used for collateral by the homebuyer’s present property, which permits proceeds to be utilized to close on a new property purchase before the existing one is sold.

Buy Down – A buy down occurs when a lender allows a mortgage rate to be lowered by buyer subsidization.

Caps – Safeguards that set limits on the amount of interest rate or payment change on a monthly basis for ARM’s

Change Frequency – The increment of the number of months that a rate may change in an ARM

Closing – The closing is the final meeting that occurs involving the property buyer, the seller, and the lender during which all legally binding papers are signed and the property purchase deal is “closed” and property ownership is transferred.

Closing Costs – The expenses and fees incurred either by a home buyer or seller at a closing for a variety of tasks, charges, insurances, etc.

Conversion Clause – ARM provision for having the mortgage’s rate be converted to a fixed-rate at some point during the life of the loan.

Credit Report – Official documentation noting the status and history of a potential buyer/borrower.

Default – In a nutshell, not making a payment on time; legally failing to provide required payment to lender by specified deadline.

Down Payment – The money paid during a property purchase that fills the gap between sale price and moneys borrowed.

Equity – The amount left over when comparing money owed on a property to the property’s current value.

Escrow – An escrow account is held by the lending institution in which the borrower pays money for insurance or tax reasons. Escrow describes the deposits that are held when a loan is pending closing.

Escrow Payment – The part of a borrowers monthly mortgage payment that the lender holds to pay for insurance, lease, or tax purposes.

Fannie Mae – Federal National Mortgage Association; a government backed organization that buys and sells residential mortgages.

Freddie Mac – Federal Home Loan Mortgage Corporation; a government backed organization that acquires mortgages from various depositary institutions and HUD-approved lenders.

FHA Loan – A loan that the Federal Housing Administration insures, open to any home buyer that meets certain requirements.

Fixed Installment – The regular monthly payment that is due on a mortgage.

Fixed Rate Mortgage – A mortgage loan whose interest rate will not change for the entire duration of the loan.

Foreclosure – Process by which a mortgage lender legally repossesses and forces the sale of a mortgaged property as a result of the borrow defaulting.

GPM / Graduated Payment Mortgage – Flexible mortgage payment plan in which the borrower’s monthly payments increase for a specific timeframe.

GEM / Growing Equity Mortgage – Mortgage in which the borrower’s payments increase over a set period of time; this larger amount is then applied to the mortgage’s principal in most cases.

Hazard Insurance – Insurance used for protection against various forms of property damage and/or loss.

HUD-1 Statement – This is a document provided by your lender/broker that includes a detailed listing of the moneys needed at closing, including points, escrow, commissions, and other fees.

Impound / Reserves – The amount of the buyer’s monthly payment kept by the lender to pay for various insurances or taxes.

Index – The publicly available market interest rate used by lenders to determine the difference between ARM rates and current interest rates and to set loan sale rates on fixed rate mortgages.

Interest – Monetary fee charged by a lender to a buyer for borrowing money.

Interest Rate Ceiling – The agreed largest possible interest rate for an adjustable rate mortgage.

Interest Rate Floor – The agreed lowest possible interest rate for an adjustable rate mortgage.

Interim Financing – A short-term or temporary loan made while property construction is being completed.

Jumbo Loan – A mortgage that exceeds the limits set by Fannie Mae and Freddie Mac.

Liabilities – The debt owed by a buyer.

Lien – A claim made on a piece of property for exacting payment of a financial obligation.

Lock – Mortgage lender’s written guarantee that the quoted rate is good for a set period of days from the time of issuing.

Margin – The total that a mortgage lender adds to the index on an ARM to set the adjusted rate.

Market Value – The price that a buyer and seller would agree upon for sale of a property.

Maturity – The date that a loan’s principal is scheduled to be paid in full.

Mortgage – Document pledging a property to a loan provider as security for a debt’s payment.

Mortgage Broker – One who receives compensation for the work of bringing a buyer to a lender for the purpose of completing a loan arrangement.

Mortgage Insurance – Money paid on a regular basis for the purpose of insuring a mortgage on a property whose buyer has less than 20% equity.

Note – A document specifying that a borrower is to repay a loan at a specific interest rate over a specific period of time.

One Year Adjustable Rate Mortgage / One Year ARM – Loan in which the interest rate changes on a yearly basis.

Origination Fee – Fee charged by a lender for the work involved in preparing a loan.

Owner Financing – Property sale in which the seller provides at least some part of the buyer’s financing.

Payment Change Date – Date when a new payment amount begins on an ARM or GPM.

PITI – Principal, Interest, Taxes, and Insurance

Points / Loan Discount Points – Interest money paid at closings for the purpose lowering the cost of monthly loan payments. One Point is equal to one percent of the loan’s total amount.

Power Of Attorney – The legal authorization of one person being able to act in behalf of another.

Preapproval – The process of evaluation a potential buyer goes through to decide how much money a loan can be given to them for.

Prepayment – Mortgage stipulation permitting the borrower to make additional payments before the maturation date.

Prepayment Penalty – Fee charged by a lender to a borrower when the borrower repays the a loan earlier than an agreed upon date.

Principal – On a loan, the total amount that remains unpaid by the borrower. On a monthly payment, the amount that goes towards the final paying of the loan.

PMI / Private Mortgage Insurance – Insurance that a buyer must pay for; required when a borrower does not provide a 20% down payment on purchase of a new property.

Rate Lock – Commitment given by a lending institution to a buyer that guarantees a certain interest rate is valid for closing for a specified period of time.

Real Estate Agent – A person that is licensed to negotiate the sale of property.

Recission – The cancellation of an agreement or contract; the law giving a homeowner 3 business days to cancel a loan arrangement. “Right of Recission”

Refinancing – The obtainment of a new replacement mortgage on a property that is already mortgaged.

Satisfaction of Mortgage – Document issued to a borrower on the occasion of their repayment of said loan.

Second Mortgage – The acquirement of an additional, subordinate mortgage on a property that is already mortgaged.

Servicing – All the work involved to keep a mortgage in good standing such as paying various tax, insurance, and other costs.

Shared Appreciation mortgage – A mortgage in which the buyer receives a property for less than current market value; in exchange, the seller is granted a portion of future property appreciation values.

Simple Interest – Interest calculated only on the balance owed.

Step Rate Mortgage – A loan in which the interest rate increases based on a set schedule until a set point, after which the rate remains constant.

Title – The document declaring a property’s ownership.

Title Insurance – Insurance policy that insures a potential home buyer or lender against errors in a title search.

Title Search – A legal examination of records to determine who is the rightful owner of a property.

Truth in Lending – Federal law that requires the lenders to disclose the APR to a buyer after applying for a loan.

Underwriting – The decision made by a lender on whether or not to provide a loan to a borrower based on their qualifications.

The House Team Of Mortgage Intellingence asked:


For most Canadians, buying a home is the largest financial decision they will make in their lifetime. Yet, consumers across the country are more likely to painstakingly review dozens of investment possibilities for their portfolios than to scrutinize their mortgage choices. The mortgage world – like the investment world – can sometimes be confusing. There is a vast array of choices – open, closed, fixed, floating, long or short amortization, prepayment options, portability… and of course, the rate itself.

Making the right mortgage decision can have a huge financial impact over the long term. Many Canadians have an investment advisor to help them sort through their choices. Now, Canadians are also beginning to turn to mortgage brokers to help them make better mortgage decisions. Canadians are just now catching up with their counterparts south of the border, where mortgage brokers already arrange approximately 70 per cent of mortgages for U.S. properties.

So what is a mortgage broker? The role of a mortgage broker is to understand your mortgage needs, seek out the best options for your situation, and guide you through the lending process. A mortgage broker does not work for any individual institution or lender, but is independent, and has up-to-the-minute loan rates for a wide array of banks and other lending institutions.

There was a time when the banks exercised the view that they “owned” their customers, and mortgage brokers were perceived only as a last resort for home buyers with poor credit history. But times have changed, and home buyers in every bracket are learning they can benefit from the professional advice of a mortgage broker.

A good investment advisor can make you thousands of dollars. But a good mortgage broker will SAVE you thousands of dollars. Whether you are buying a home or renewing a mortgage, consider making a mortgage broker part of your financial plan this year.