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An 80/10/10 mortgage is a program in which the borrower makes a
10% down payment, then takes a primary mortgage for 80% of the home
values, and a second mortage
for the remaining 10% of the home value. 80/10/10 loans are a popular
way of avoiding paying PMI.
An 80/15/5 mortgage is a program in which the borrower makes a
5% down payment, then takes a primary mortgage for 80% of the home
values, and a second mortage
for the remaining 15% of the home value. 80/15/5 loans are a popular
way of avoiding paying PMI.
An 80/20/0 mortgage is a program in which the borrower puts no money
down on a home purchase, then takes a primary mortgage for 80% of the home
values, and a second mortage
for the remaining 20% of the home value. 80/20/0 loans may be used to
avoid PMI.
The adjustment cap on an ARM mortgage is the maximum amount the interest
rate can increase from any previous adjustment, not including the
first adjustment.
For example, if you had an adjustment cap of 2%, and your last
rate adjustment brought you to 6%, the your next rate could
increase to a maximum of 8%.
ARMs are mortgages with interest rates that can vary over time.
The interest rate is fixed for an initial period of time. For example,
a 5/1 ARM has a fixed rate for the first 5 years. ARMs usually have a
lower initial interest rate than a 30-year fixed-rate loan, but ARMs
carry some risk since interest rates could rise after the initial period.
View the tradeoffs with the
Fixed vs ARM mortgage calculator.
Discount points are fees paid to reduce the interest rate when taking
out a mortgage. Each point represents one percent of the loan. So if you
pay 2 points on a loan of $100,000, you will pay an additional $2,000
upon closing. To find out if paying points is worth it, use
this calculator. Discount points,
unlike origination points,
are tax-deductible. If you're using the loan to purchase your primary
residence, you can usually take the entire deduction in the year
the loan closes. For most refinances, you must spread out the deduction
over the life of the loan. You can read more about it on the IRS site,
here
and here.
A homeowners association is comprised of a set community of homes or condos.
Condos, townhomes, and homes in gated communities usually belong to a
homeowners association.
HOA fees can pay for services such as water, sewer, garbage,
landscaping/maintenance for commmon areas. HOA fees for condos often
include homeowners insurance.
The initial cap on an ARM mortgage is the maximum amount the interest
rate can increase on the first interest rate adjustment after the
initial fixed period. For example, if a 5/1 ARM with a 5.0% rate
has an initial cap of 5%, after the 5th year, the interest rate could
increase up to 10%.
The lifetime cap on an ARM mortgage is the maximum amount the interest
rate can increase over the entire life of the loan. So if your initial
rate on the ARM was 5% and the lifetime cap is 6%, the interest rate
can never go above 11%.
The MLS compiles a list of all the properties offered by licensed
real estate brokers. Almost every home for sale ends up in the MLS
database.
Also called origination fees. Origination points are fees paid to process
the mortgage. Each point represents one percent of the loan balance. So
if you pay 1 point on a loan of $100,000, you will pay an additional $1,000
when you close the loan. Origination points are not tax-deductible.
PITI is short for describing the total payments on a home
including principal, interest payments, property tax, and insurance
premiums. HOA fees are usually included here too.
PMI is insurance that
lenders charge when the primary loan balance on a home purchase
is greater than 80% of the home's value. The PMI payment usually starts
at 0.5% of the loan balance, and then decreases in following years.
The requirements
on dropping PMI vary slightly depending on where you live and when you
bought your home, but, in general, when your loan-to-value ratio reaches
about 80%, you can drop PMI. People often try to avoid PMI by taking out
second mortgages (see
80/10/10 loans,
80/15/5 loans).
Find out more about
dropping PMI.
For the purposes of this site, a second mortgage
refers to a loan taken in addition to the primary loan to keep the
primary loan at 80% of the home value and avoid PMI. There are many
types of second mortgage payment plans. One of the most common is
a loan with payments amortized over 30 years, but with a balloon
payment at the end of the 15th year. The interest rates on such a
second mortgage are often 2-3% higher than comparable 30-year fixed loan.
Outside of this site, second mortgages can refer to any other loan or
credit line taken against a home, such as a
Home Equity Loan (HEL) or a
Home Equity Line of Credit (HELOC).
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