With the Federal Reserve's latest move to make bond purchases causing waves in the mortgage refinancing sector, the rewards for the individual is often overlooked because of certain misunderstandings in the language used. As reported recently by wsj.com, the purchases by the Fed allowed banks to forego risk of default by the homeowner, allowing the banks to reinvest the funds collected into new mortgages or other business.
In the middle of all this, the homeowner is often left in the dark as to the terms used in the transaction. In a report from finance.yahoo.com, here are some of the terms often misunderstood in mortgage refinancing transactions.
1. Mortgage Balance. This is the figure needed to be known as it is the full amount owed by the homeowner at any given time during the term of a mortgage. It is the interest plus the principal of the loan.
2. LTV Limit. This is a ceiling imposed on an individual homeowner by banks as to the amount that can be refinanced on the standing loan. This involves the comparison of the current loan or mortgage as against the current estimated value of the property subject of the loan.
3. Cash Out. This is the value of the equity sunk into the home subject of the loan. This is the amount that can be received by the homeowner when the refinanced mortgage is closed out.
4. HARP. This is the acronym for Home Affordability Refinance Program which allows Fannie Mae or Freddie Mac owned mortgaged properties to be refinanced at better rates despite little or no equity. This is a benefit provided by the Making Home Affordable Act.
5. Origination Charge. This is the amount charged by the lending bank for the administrative costs of having the mortgage or refinancing application processed.
As can be seen, these are simple terms that can turn on how the mortgage can cost both in the short term and the long term for the individual homeowner.
