Home Mortgage Loan Frequently Asked Questions

Why should I "lock in" an interest rate?
When interest rates are volatile, borrowers may want to "lock in" a rate in the event that rates should happen to rise in the near future. Most lenders will lock in an interest rate and set a limit on the amount of time that guaranteed rate is in effect, usually 30, 45, or 60 days.

What are points?
One point is equivalent to one percent of the loan amount. Some borrowers prefer to pay one or two points up front in exchange for a lower mortgage rate, potentially saving the borrower money over the life of the loan. Points do not affect APR.
Mortgage points are considered by the IRS to be a form of pre-paid interest. Therefore, mortgage points can be deducted from taxable income.

What is Private Mortgage Insurance (PMI)?
Private Mortgage Insurance (PMI) is insurance against a loss by a lender in the event of the borrower defaulting on a mortgage. It is usually required for loans in which the down payment is less than 20 percent of the sales price or, in a refinancing, when the amount financed is greater than 80 percent of the appraised value. The premium is paid by the borrower and is included in the mortgage payment.
PMI is similar to insurance by governmental agencies such as FHA or VA, except that a private insurance company issues it.