Closing Costs and Terms
to Know
ADJUSTABLE-RATE MORTGAGE (ARM)
A mortgage whose interest rate is not
fixed, but changes during the life of
the loan, along with movements in a
specified interest-rate index. ARMs are
sometimes called AMLs (adjustable
mortgage loans) or VRMs (variable-rate
mortgages).
ANNUAL
PERCENTAGE RATE (APR)
A measure of the cost of
credit, expressed as a yearly rate. It
includes interest and other charges,
such as closing costs. APR is designed
to provide consumers with a good basis
for comparing the cost of loans,
including mortgages, but some experts
say lenders use different methods to
calculate APR, making it less useful for
comparison shopping.
APPLICATION
FEE
Fee charged by lender to offset fixed
costs related to mortgage loan
processing such as appraisal, credit
report, and underwriting.
CAP
A limit on how much the interest rate or
the monthly payment can change, at each
adjustment or during the life of the
mortgage. Interest caps limit the
interest a lender can charge, but
payment caps dont; they only limit the
monthly loan payment, so they may result
in negative amortization.
CLOSING -
The consummation of a real estate
transaction. The closing includes the
delivery of a deed, financial
adjustments, the signing of notes, and
the disbursement of funds necessary to
complete the sale and loan transaction.
CLOSING COSTS
Costs and fees associated with
the change in ownership of a property
and with a mortgage that are assessed at
the legal closing, or settlement.
Closing costs include required
certifications, insurance, taxes, and
other fees, and typically total three to
six percent of the mortgage amount.
CLOSING FEE
The fee charged by the closing
agent who prepares the closing documents
and closes the loan on behalf of the
lender.
COMMITMENT
FEE
Often called an origination fee.
Generally one percent of the mortgage
amount.
DISCOUNT
POINTS
Used by the lender to adjust
the yield on the mortgage when it is
sold to an investor. Each point equals
one percent of the mortgage amount. By
paying more points, the borrower can
obtain a lower mortgage interest rate.
Points are usually collected at closing
and may be paid by the borrower or the
home seller, or may be split between
them.
