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Glossary of Terms

 

Typical Questions and Terms:

  • What is a mortgage broker compared to a direct lender?

  • What is a rate lock?

  • What is a float down feature?

 

Mortgage Broker ... what is the difference between and mortgage broker and a lender? A broker counsels the borrower on different programs that are available and helps guide them through the loan process. In this way the broker takes the application, processes the loan and verifies information from the application.

 

 

Float Down:

     A float-down provides the same upside protection as a lock, plus an option to reduce the rate if market rates decline.  Like a lock, a float-down is an option that can be attached to any kind of mortgage.  Since it carries more value to the borrower than a lock, however, and is more costly to the lender to provide, the borrower pays more for it. 

     On a lock, the lender promises that the loan terms agreed upon will be honored when the loan closes, regardless of what happens to market interest rates in the meantime.   The borrower is bound by the lock if interest rates go down, and the lender is bound if they go up. 

Borrowers, however, sometimes walk away when rates go down, provided they have enough time and the inclination to start the process over again with another lender.   To prevent this, some lenders charge a non-refundable fee that borrowers lose when they walk, but many do not. With a float-down borrowers have the right to have the rate reduced.  They need not walk out on their obligations, relinquish any fees they have paid, and start the loan search all over again.  Usually the right can be exercised only once, at which point the float-down converts to a lock. 

     But a float-down comes at a price.  For example, a fee of one point or 1% of the loan amount is typically charged for the option. The borrower therefore pays 1 point for the right to take advantage of any reduction in market rates that may occurred within the lock period.

     In other words, a float down will only help you if rates goes down and for that protection a fee is charges; be assured lenders do not give money or options away. Generally it is safe to say that a float down feature that is not paid for and is not in writing does not really exist. Our experience has been that if rates decline 3/8th of a percent we can usually have an adjustment made even on a lock without a float down option. This being the case, a 1% fee, which by rule of thumb is the equivalent of a 0.25% reduction in rate anyway, does not really benefit the borrower.

 

 

 

Rate Locks there are a few helpful points that borrowers should understand.

-          A mortgage lock is the buying of a mortgage rate on a set sum of money to be delivered some time in the future.

-          Once a lock is set is must be executed on or before the lock period expires.

-          Extended lock periods typically requires a fee of 1% of the loan amount.

-          Should a lock expire the borrower is subject to a “worse case” scenario.

-          Locks can only be created once a borrower has made application and has been qualified for the mortgage.

-          The rate increases as the number of days locked increases in number; a 120 day lock is greater than a 30 day lock.

 

 

 

 

 

 

 

 

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Acquire Mortgage & Finance provides financing for homes, commercial property and building lots. For you home loan and home equity, HELOC, needs contact us at the phone  number or addresses above. We look forward to providing the home loan mortgage you need to meet your requirements whether your credit is excellent, good or even poor call Acquire Mortgage and find the program just right for you. We Financing property across New Hampshire, NH.