Mortgage Home Buying Refinancing Related FAQs

What Is A Mortgage?
A mortgage is paperwork that a lender issues to legally connect your home to the money that the lender loans you. Technically there is the mortgage and the mortgage note. In these documents you will find the terms of your mortgage such as interest rate, length, do you have a pre-payment penalty, is a fixed rate mortgage and adjustable rate mortgage.

What Is Loan To Value?
Loan To Value is comparison of your loan amount to the appraised value of your home expressed in percentage. For example if you had a $200,000 home with a $160,000 mortgage you would have a 80% loan to value. Loan to value is often referred to as "LTV". LTV’s are important in qualifying for a mortgage – the higher LTV you need (less money for down payment) the harder it is to qualify for a mortgage.

What Are Discount Points – Or Points?
Points are charged when you want a lower interest rate than what your loan officer is quoting you. One Point is 1% of your loan amount. For example, if your loan officer quoted you 6% for a $200,000 mortgage you could pay one point to get an interest rate of 5.75%. In general, every .25% in interest rate is equivalent to 1% of your loan amount in cash.

Should I Pay Points? Is Paying Points Bad?
Paying points are not bad if you know when to pay them or why you are paying them. In general, points are charged by the mortgage loan officer/broker/lender/originator/banker to make a profit on your loan and to get you a lower interest rate. In most cases, unless you need a lower monthly payment in order to qualify for a mortgage you want to look at paying points if you know you are going to be in your mortgage and home for more than say 3 years. You also may not be able to pay points if you do not have enough cash on hand.

What Makes Up A Mortgage Payment?
The different parts of a mortgage payment are: principal payment, interest payment, and escrow payment. The different parts of the escrow payment are: hazard insurance payment (home owners insurance payment) and real estate tax payment.

When are my Real Estate Taxes Paid With My Mortgage?
Real estate taxes are generally paid either once a year or twice a year depending on where you live. When you get your mortgage you will sign paperwork that sets up your escrow account and directs your real estate tax bills to be sent to either your mortgage company or to the mortgage servicing company. The company who services your mortgage payments is responsible for paying your real estate taxes for you if they are the company who manages your escrow account. This is almost always how escrow accounts are set up.

What Happens To My Mortgage Payment When I Pay It?
When you get your mortgage you will get mortgage payment information in your loan closing paperwork that your closing company should give you. This information will tell you where to make your first couple of mortgage payments. The address of where you send your mortgage payments may change as your mortgage gets into completely processed by your lender.
In most cases, the entity that you pay your mortgage payments to is called the mortgage servicing company or the mortgage servicing department. Sometimes your lender will have a third party company handle all of the servicing of your mortgage payments. What this means is that when you make your mortgage payment the servicing company will split your payment up into the different parts.