MORTGAGE EDUCATION

Whether you should consider an online mortgage depends on what you value most. Generally, borrowers considering an online mortgage rank convenience and speed as top priorities when financing a home purchase.

Many banks with brick-and-mortar locations also serve as online mortgage providers, giving buyers the option to complete the process remotely or in person. When choosing whether an online mortgage is right for you, it comes down to personal preference. Get started with an online application today.

Whether or not you need to pay a mortgage insurance premium (MIP) depends on the terms of your loan. Down payment amounts dictate the need for mortgage insurance premiums, which influence monthly payments — and the amount due at closing. All Federal Housing Authority (FHA) mortgages require borrowers to pay an upfront mortgage insurance premium, known as UFMI, at closing in addition to an annual premium for the life of the loan. The upfront premium costs 1.75% of the loan amount, and the annual mortgage insurance premium runs between 0.45% to 1.05%.

If you made a down payment of less than 10%, you’re responsible for paying the annual premium in monthly installments over the life of the loan. If you put down over 10%, the requirement to pay the annual premium ends after 11 years. 

A mortgage loan officer works for a bank or mortgage company and assists customers who apply for a home loan. Mortgage loan officers stay updated on the latest mortgage news and use their expertise to evaluate and authorize approval of mortgage loans. Mortgage loan officers help customers choose loans that best fit their financial situation and then help them complete the application process. Mortgage loan officers also serve as a borrower’s main contact throughout the home loan process.

On average, refinancing a mortgage costs homeowners approximately $3,000. However, the actual cost to refinance a mortgage depends on the loan amount, county of residence and several other factors. Closing costs typically include lender fees, a home appraisal and title services. Lenders may offer lower-cost refinancing options, which feature a higher interest rate with fewer upfront fees compared to a conventional mortgage.

There are a few differences between a jumbo mortgage and a balloon mortgage such as length of term, interest rates and payment terms.

A jumbo mortgage is a type of home loan used to finance properties that are significantly more expensive than the average home. Jumbo mortgages are generally reserved for affluent buyers who purchase a home worth more than $548,250. On average, interest rates and down payments are higher, and jumbo mortgages are generally paid off in equal monthly payments. They can have 15- to 30-year terms.

Balloon mortgages typically carry lower interest rates and monthly payments than jumbo loans. Unlike a jumbo mortgage, balloon mortgages require borrowers to pay off the remainder of their loan as a lump sum payment at a predefined time, typically toward the end of the term. A balloon mortgage can last from three to 30 years. 

Mortgage amortization is the process by which a home loan is separated into a series of fixed monthly payments. Mortgage amortization can help borrowers calculate how much of their payments are being put toward interest and principal.

Home construction loans and typical mortgages have several distinct differences. Though both types of loans can be used to secure financing for a home, lenders generally require home construction loan borrowers to make larger down payments. Lenders also typically have more stringent credit requirements for borrowers seeking a construction loan than for those applying for a typical mortgage.

The repayment term can also vary between the two home loans. Some home construction loans must be paid off in a year or less, depending on the type of loan the buyer secured, and standard interest rates are generally higher as well. 

An adjustable rate mortgage (ARM) on a home loan comes with a flexible interest rate that changes over the life of the loan. Some ARMs offer initial fixed interest rates for three, five or seven years and then adjust over the remainder of the loan term. Compared to a fixed rate mortgage, an ARM mortgage offers a lower initial interest rate, but after the fixed rate period ends, monthly payments typically fluctuate up or down, depending on the market.

In relation to a mortgage, an escrow account is a fund that contains money designated to cover certain monthly expenses including property taxes and homeowner’s insurance. Taxes and insurance represent the two primary elements of what is held in an escrow account by the lender, which pays those bills on the borrower’s behalf. Financial lenders generally require an escrow account for mortgage loans, although escrow can sometimes be waived if a borrower pays a down payment of at least 20%.

The process of getting a mortgage can differ by lender. To apply for a mortgage, look for lending institutions with the best rates and terms to meet your financial needs. The lender will collect information about your income, employment, assets, credit score, and debt information before pre-approving you for a loan. Once your offer has been accepted on a home, you’ll work with the lender throughout the mortgage process until the final closing day.

You can take several different paths to refinance your mortgage. First, you need to determine your goal: Do you want to lower your interest payments, shorten the loan term, drop mortgage insurance or free up cash?

Next, you should shop for the best mortgage refinance rate for your goals. A loan officer can help you determine the best options for refinancing your mortgage. Next, you’ll need to select your lender. Once you lock in your interest rate, it’s time to close on the loan, which is a similar process to closing on your original mortgage.

Whatever your financial needs, an experienced mortgage loan officer can guide you through the process of how to refinance a mortgage.

If you’re wondering when to refinance your mortgage, compare current mortgage rates to your existing mortgage rate. If you can lock in a significantly lower rate and still save money after closing costs, that’s when you should consider refinancing a mortgage. You should also evaluate refinancing based on how much longer you intend to stay in your home. When mortgage rates drop significantly, refinancing your home mortgage can allow you to lower your monthly payments, shorten the loan term or borrow cash against your equity while securing a better interest rate on your home loan.

First Merchants Bank’s online mortgage center helps homebuyers evaluate and find the best mortgage solutions based on their lifestyle, budget and goals. Our mortgage loan officers guide you through every step of the borrowing process, so you can confidently choose a better mortgage that fits your financial needs. Popular mortgage solutions include 30-year and 15-year fixed rate mortgages, adjustable rate mortgages and construction loans.

Mortgage points are an optional, one-time fee you pay your lender at the closing to reduce your mortgage interest rate. One mortgage point costs 1% of the mortgage loan amount. While mortgage points increase closing costs, a lower interest rate over the life of the home loan reduces monthly mortgage payments and the amount of interest paid. To really know if mortgage points are worth it, we recommend comparing the cost of the points at closing with the amount of anticipated savings in interest paid. This anticipated savings varies based on the amount of time you plan to stay in the home or whether you plan to refinance in the near future.

The length of time it takes to pay off a home mortgage depends on the specific loan terms. First Merchants offers several mortgage solutions, including a 15-year mortgage and a 30-year fixed mortgage. Shorter mortgage terms typically come with a higher monthly payment, but the homebuyer pays less interest over the life of the loan.

Homebuyers also generally have an option to select an adjustable rate mortgage, which includes an interest rate that adjusts with the marketplace. Adjustable rate loans typically start off with lower interest rates, but they increase with time. 

As a first-time homebuyer, you’ll need to take a few steps before you figure out how much you can afford to spend on your first home mortgage, and then get pre-approved for a mortgage loan. First Merchants Bank offers an online mortgage calculator, as well as an online pre-approval application process, both of which are designed to be quick and convenient. You also need to decide how much you can afford for a down payment, which may determine whether you choose conventional financing or an alternative, low down payment option.

The definition of a mortgage corresponds to a type of loan used to finance the purchase of a home or other real estate. House mortgage payments, paid monthly, consist of the principal balance, interest, insurance and taxes. A percentage of each payment goes toward paying the interest versus the principal, but as time goes on, more of your money goes directly toward paying off the principal. A standard mortgage typically offers either a 30-year or 15-year term for a fixed rate loan. Stretching payments over a longer period of time reduces monthly payments but increases the interest rate.

A mortgage broker works on your behalf to find a mortgage bank, so you can secure a home loan. By contrast, a mortgage lender approves you for a home loan and lends you the money to buy a home. Whether you choose to work with a mortgage broker or directly with a mortgage bank, ensure you’re getting the best loan terms and interest rates available to you. Also, carefully examine any fees or additional costs the broker or lender may charge.

Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.

A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.

A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).

The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.

The date that the interest rate changes on an adjustable-rate mortgage (ARM).

The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).

An analysis of a buyers ability to afford the purchase of a home. Reviews income, liabilities, and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely.

The gradual repayment of a mortgage loan, both principle and interest, by installments.

The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.

The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans, however APR should not be confused with the actual note rate.

A written analysis prepared by a qualified appraiser and estimating the value of a property.

An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).

The transfer of a mortgage from one person to another.

The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.

A financial statement that shows assets, liabilities, and net worth as of a specific date.

Income before taxes are deducted.

A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial savings in interest.

A loan that is collateralized by the borrower's present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as "swing loan."

An individual or company that brings borrowers and lenders together for the purpose of loan origination.

When the seller, builder or buyer pays an amount of money up front to the lender to reduce monthly payments during the first few years of a mortgage. Buydowns can occur in both fixed and adjustable rate mortgages.

Limits how much the interest rate or the monthly payment can increase, either at each adjustment or during the life of the mortgage. Payment caps don't limit the amount of interest the lender is earning and may cause negative amortization.

A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.

A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

A meeting held to finalize the sale of a property. The buyer signs the mortgage documents and pays closing costs. Also called "settlement."

Interest paid on the original principal balance and on the accrued and unpaid interest.

An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports from a credit repository and from other sources.

A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.

A report detailing an individual's credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant's creditworthiness.

A credit score measures a consumer's credit risk relative to the rest of the U.S. population, based on the individual's credit usage history. The credit score most widely used by lenders is the FICO® score, developed by Fair, Issac and Company. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represents lower credit risks, which typically equate to better loan terms. In general, credit scores are critical in the mortgage loan underwriting process.

The document used in some states instead of a mortgage. Title is conveyed to a trustee.

Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

Failure to make mortgage payments on time.

This is a sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.

In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to reduce the rate and lower the payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate usually increases according to its index rate.

Part of the purchase price of a property that is paid in cash and not financed with a mortgage.

A deposit made to a seller that represents a buyer's good faith to buy a home.

A borrowers normal annual income, including overtime that is regular or guaranteed. Salary is usually the principal source, but other income may qualify if it is significant and stable.

The amount of financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage.

An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit of funds or documents into an escrow account to be disbursed upon the closing of a sale of real estate.

The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

The part of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.

A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.

A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

FICO® scores are the most widely used credit score in U.S. mortgage loan underwriting. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represent lower credit risks, which typically equate to better loan terms.

The primary lien against a property.

The monthly payment due on a mortgage loan including payment of both principal and interest.

A mortgage interest that are fixed throughout the entire term of the loan.

An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

A government-owned corporation that assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.

A fixed-rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage.

A mortgage that is guaranteed by a third party.

The percentage of gross monthly income budgeted to pay housing expenses.

The index is the measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time. The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. Some index rates tend to be higher than others and some more volatile.

This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It's also known as "start rate" or "teaser."

The regular periodic payment that a borrower agrees to make to a lender.

A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (PMI).

The fee charged for borrowing money.

The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.

An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor's monthly payments during the early years of a mortgage.

For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

A person's financial obligations. Liabilities include long-term and short-term debt.

For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.

For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.

An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time.

A cash asset or an asset that is easily converted into cash.

A sum of borrowed money (principal) that is generally repaid with interest.

The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.

The guarantee of an interest rate for a specified period of time by a lender, including loan term and points, if any, to be paid at closing. Short term locks (under 21 days), are usually available after lender loan approval only. However, many lenders may permit a borrower to lock a loan for 30 days or more prior to submission of the loan application.

The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

The date on which the principal balance of a loan becomes due and payable.

That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction and doesn't cover all of the interest. The loan balance therefore increases instead of decreasing.

A legal document that pledges a property to the lender as security for payment of a debt.

A company that originates mortgages exclusively for resale in the secondary mortgage market.

An individual or company that brings borrowers and lenders together for the purpose of loan origination.

A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency.

The amount paid by a mortgagor for mortgage insurance.

A type of term life insurance In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.

The borrower in a mortgage agreement.

Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

The value of all of a person's assets, including cash.

An asset that cannot easily be converted into cash.

A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

A property purchase transaction in which the party selling the property provides all or part of the financing.

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the adjustment date.

A limit on the amount that payments can increase or decrease during any one adjustment period.

A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months (usually three).

A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender. Points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.

The process of determining how much money you will be eligible to borrow before you apply for a loan.

A fee that may be charged to a borrower who pays off a loan before it is due.

The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

The outstanding balance of principal on a mortgage not including interest or any other charges.

The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not.

Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.

A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

A real estate broker or an associate who is an active member in a local real estate board that is affiliated with the National Association of Real Estate Agents.

A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

Paying off one loan with the proceeds from a new loan using the same property as security.

A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services.

Where existing mortgages are bought and sold.

The property that will be pledged as collateral for a loan.

An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See Owner Financing.

An organization that collects principle and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.

When a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.

Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.

A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.

A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.