MoneyTrack: Real Estate 101
Whether your a first-time buyer or seasoned home owner, the key to being able to talk to your broker is to learn the lingo. Here are some terms you need to know:
Mortgage - A type of loan where the bank has a claim on your house in exchange for lending you money to purchase your home.
Fixed Rate Mortgage - This type of loan locks in the interest rate for the duration of the loan, usually for 15-30 years. This is the most risk free option.
Adjustable Rate Mortgage - This loan’s interest rate will fluctuate based on the direction of the market. An example of this is the 5/1 Arm Loan. It has fixed rate for first five years then the interest rate increases or decreases with the market for the rest of the loan period.
Interest Only Loan – The borrower pays only the interest on the loan for a set number of years. Once the interest-only period expires, the borrower has to renegotiate a brand new mortgage or pay off the principle balance. Be advised, if your house goes down in value, you might wind up owing more on the property than it is worth when you sell it.
LIBOR – LIBOR stands for the London Interbank Offered Rate, and it’s the benchmark what the world’s bankers and brokers use to set short term interest rates. Adjustable rate mortgage rates are based on the one-year LIBOR Index.
Fannie Mae – Short for Federal National Mortgage Association, Fannie Mae is a government-sponsored enterprise that works directly with mortgage banks to make sure they have sufficient funds to continue to lend to home buyers.
Freddie Mac – Short for Federal Home Loan Mortgage Corp, Freddie Mac buys mortgages, pools the loans together, and then sells them as mortgage back-securities (insert tool tip) to investors. Similar to Fannie Mae, it’s purpose is the increase the money available for lending.
Gennie Mae – Short for Government National Mortgage Association, Gennie Mae is similar to Fannie Mae and Freddie Mac. The main difference is that Gennie Mae mortgages are of the highest quality and guaranteed by the U.S. Government.
Refinance – If you qualify for a refinance, it means you will negotiate your existing mortgage terms for better terms. Lower interest rates or adjusted monthly payments are the most common revisions of a refinance. Be advised, there are penalty fees involved with refinancing.