Financial Education

IDK What This Means…

January 17, 2019 | Return to Financial Education

Buying a house can be stressful – being a first time home buyer can be even more overwhelming. Apart from finding your perfect property, there’s the financing. This is where things can become really scary.  At CNB, our mortgage lenders act as your buying partners. They are with you every step of the way to make sure the process is stress-free and understandable. Before you walk into your local branch, brush up on some acronyms that may be brought up during the conversation.

• ARM (Adjustable Rate Mortgage) is a loan that allows the lender to adjust the interest rate during the term of the loan.  These changes are determined by a margin and an index so that the interest rate change is based on current market conditions.  Most often these interest rate changes are limited by a rate change cap and a lifetime cap.  If you apply for an adjustable rate mortgage, the lender is required to provide you with an ARM Program Disclosure which spells out the terms of the loan.

• APR (Annual Percentage Rate), to make it easier for consumers to compare mortgage loan interest rates, the federal government developed a standard format called an "Annual Percentage Rate" or APR to provide an effective interest rate for comparison shopping purposes.  Some of the costs that you pay at closing are factored into the APR for ease of comparison.  Your actual monthly payments are based on the periodic interest rate, not the APR.

• FHA (Federal Housing Administration) is an area of the U.S. Department of Housing and Urban Development (HUD) that insures low downpayment mortgages granted by some lenders.  The loan must meet the established guidelines of FHA to qualify for the insurance.

• LTV (Loan to Value Ratio) is used by lenders to calculate the loan amount requested as a percentage of the value of a home.  To determine the loan to value ratio, divide the loan amount by the home's value.  The LTV ratio is used to determine what loan types the borrower qualifies for as well as the cost and fees associated with obtaining the loan.

• P&I (Principal & Interest) is the payment required to repay a mortgage in accordance with its terms.

• PITI (P)rincipal, (I)nterest, (T)axes, and (I)nsurance) is a reference to the total monthly payment required to repay a mortgage by its term, as well as monthly escrow payments for taxes and insurance.

• PMI (Private Mortgage Insurance) is insurance provided by a private company to protect the lender if the borrower were to stop making payments on the loan.  The cost of the insurance is usually paid by the borrower and is most often required if the loan amount is more than 80% of the home's value.  Sometimes referred to as mortgage insurance.

CNB has six full-time mortgage lenders, who can meet with you and go over any questions you may have. Stop into your nearest branch or get in touch with us via email or phone, (517) 439-4300 or Toll-Free (888) 322 -1088