August 2009 Vol. 4 No.8
• 8 Mortgage Terms You Should Know • August's Home Value Improver • About Us

8 Mortgage Terms You Should Know

Even if you've never bought a house before, you have probably heard other people discussing things like points, piti payments, and escrow. You may have tuned it out, assuming you'd figure it out later. But now is as good a time as any to "ARM" yourself with some "points" about mortgages. Here are 8 mortgage terms worth knowing:

  1. PITI: This refers to "principle, interest, taxes, and insurance." Some people also call it "payment including taxes and insurance." While your mortgage payment is just paying principle and interest, the amount you actually have to pay each month is your PITI payment. (Perhaps it is just coincidence that it sounds like "pity.")

  2. Points: This term confuses many of my clients, and it is easy to see why. While a point equals 1% of the loan amount, it can mean different things to different loan packages. The point amount is essentially the "cost" of the mortgage package. For example, a mortgage may have a great rate but cost a few points. What works for some people may not work for others when figuring out if the point cost is worth the great rate that may be advertised. Remember, as I always say, "it's not just about the rate."

  3. ARM: Adjustable rate mortgages, which came under fire during the early days of the current recession, typically refer to programs where the interest rates are very low in the early years and then increase after a set amount of time. They are popular among homebuyers who plan on selling their home in a few years and therefore will not have to make payments with the higher interest rate.

  4. Mortgage Insurance: Insurance that covers the lender against some of the losses incurred as a result of an owner defaulting on a home loan. It is often mistakenly referred to as PMI, which is actually the name of one of the larger mortgage insurers. Mortgage insurance is usually required in one form or another on all loans that have a loan-to-value (LTV) higher than 80% (see below for more on that). Mortgages above 80% LTV that call themselves "No MI" are usually made at a higher interest rate. In these programs, borrowers pay a higher interest rate to the lender, who in turn pays the mortgage insurance premiums themselves. Also, FHA loans and certain first-time homebuyer programs require mortgage insurance regardless of the loan-to- value.

  5. Debt-to-Income Ratio: This ratio is found using your gross income and your financial obligations. The key here is that banks calculate the ratio off your GROSS income, not your "take home." It's important to remember your other expenses like car insurance, food, gas, and childcare. If it seems like the bank is willing to give you a larger mortgage than you think you can afford - though this is happening less and less these days - you may be right.

  6. Loan-to-Value Ratio: The LTV is the amount of the loan compared with the home's appraised value or selling price. If a home sells for $100,000 and the borrower mortgages $80,000, the home has an LTV of 80%. This can affect refinancing or borrowing against the equity of the home because home values change. If that same $100,000 home had an appraised value of only $80,000, the home has a 100% LTV, and the banks would not loan the borrower money on equity because there technically is none.

  7. Mortgage Interest Deduction: Ah, one of the finest reasons to buy a home. When filing taxes, homeowners can deduct the amount of interest they pay on their mortgages from their income. This can add up to a lot of money, especially in the early years of a mortgage when a significant portion of a mortgage payment is interest.

  8. Title & Title insurance: A title is also known as the deed. It is the legal document stating who owns the home and/or property. Title insurance protects the owner from any claims that someone else is entitled to the property. Lenders require this, and it can be a surprise to many first-time homebuyers.

Becoming familiar with these terms can help you be a better mortgage shopper and ultimately help you land the mortgage program that best suits your situation.

August's Home Value Improver

7 Energy Saving Tips for Your Home

Has the green movement arrived at your home yet? You've likely been recycling for years and recently quit the plastic water bottle habit. You have done your part for the earth, but there is more you can do - and have more money in your pocket. These seven energy-saving tips for your home will help you conserve energy and money:

  1. Replace your light bulbs with energy efficient ones.
    In addition to being cute and curly, these new bulbs can last 10 times as long as your older light bulbs.

  2. Keep your showers short, and use water- saving showerheads.
    Staying in the shower too long makes the bathroom all steamy and moist anyway, so why not save some money on water, and on heating water, and keep the shower short.

  3. Invest in a programmable thermostat.
    Not only will the thermostat work behind the scenes to keep the temperature down when you're asleep and at work, it will help you resist the temptation to turn the temp up when you're chilly.

  4. Check the filter on your furnace.
    They're simple to change and inexpensive, so why not do it monthly and keep your furnace running efficiently?

  5. Fill in drafty areas around windows and doors.
    It may look like some sort of ghost hunting ritual, but holding up a light piece of thread near your doors and windows can show you your drafty spots. Fill in those spots with caulking and keep the heat where it belongs - inside.

  6. Do a load of laundry only if the machine can be full.
    Explain to your teenage daughter who needs those "special jeans" clean today that she can throw some towels into the machine while she is at it!

  7. Cover pans when heating water.
    You will save energy and have your boiling water ready faster!

Today I am excited to be taping an interview for the afternoon edition of the radio show Money Matters with Scottie McCall.

The show airs weekdays at 2 p.m. in the Boston area on WBNW AM 1120, WESO 970 and WPLM AM 1390. I'll let you know when you can hear the interview!

In the meantime, please feel free to call or email for information or insights on any mortgage topic!

Best regards,
Debbie Siegel
Westchester Mortgage

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