For many home buyers, one of the most challenging aspects of the process is financing the purchase. Even when a buyer can easily obtain a mortgage, there may be financial and legal terms and concepts that are unfamiliar to many first-time home buyers. Below is a summary of some of the financing terms that buyers should be familiar with when reviewing mortgage terms in a contract.
Discount points. A mortgage point is the equivalent of 1 percent of the amount of the loan. A lender generally provides mortgage quotes that include points to potential borrowers. Discount points are a one-time closing cost which allows a mortgage borrower to take advantage of a discounted mortgage rate. Discount points are essentially a way to prepay interest on the loan. The interest rate on the loan decreases in proportion to the number of points the borrower pays the lender. Deciding whether to pay mortgage points depends on a number of factors. Paying points as prepaid interest lowers the interest rate. This can be beneficial if the purchaser intends to stay in the home for an extended period of time. The borrower also needs to consider how much cash he has available for closing costs. The zero-point alternative is preferable if your goal is to lower your closing costs. Ultimately borrows can use points to get the best possible mortgage rate but the rates vary widely among lenders.
Prepayment of loan and penalty. The note may contain a prepayment clause which gives the borrower the option to prepay the loan. Many lenders permit borrowers to pay off up to 20 percent of the balance in a single year. If the note contains a prepayment clause, the borrower may make a single one-time payment, make additional payments in addition to set monthly payments, or make supplemental contributions to the principal until the loan is paid in full. Borrowers who exercise this clause may be subject to a penalty. The note specifies the terms of the penalty, which may consist of a percentage of the loan balance or a percentage of the following year’s interest payment.
Truth in Lending Act. The Truth in Lending Act is a federal law that requires lenders to give prospective borrowers accurate and complete information about the costs of obtaining financing. The law mandates certain disclosures by lenders to create uniformity in how the terms and costs of loans are presented to consumers so that borrowers can make informed and educated decisions. One of the provisions of the legislation requires lenders to provide the terms of a mortgage, including all charges and fees, in writing.
The experienced team of attorneys at the Law Offices of Mark Weinstein, P.C. can help you litigate your real estate claims. Contact Mark Weinstein and his colleagues at (770) 888-7707 or visit them at http://www.markweinsteinlaw.com to find out how they can advise you.