Explanation of Terms Continued

Interest Rate

The interest rate of a mortgage loan is a percentage that is applied to the loan's principal over the lifetime of the loan, and this total amount is the money the lender charges the borrower for the privilege of using their money. For each payment the borrower makes on a normal loan, a portion of the payment goes toward the loan's principal and another portion goes toward the loan's interest. Interest only mortgage loans allow the borrower to make payments on just the loan's interest, which results in lower payments than regular loans whose payments are calculated on both principal and interest.

Mortgage

A mortgage is a secured loan issued for the purpose of paying for a home. Mortgages are secured by the homes they are issued for, which means that if a borrower stops making their mortgage payments, then the mortgage lender has the right to evict the borrower from the home and sell the home to pay off the mortgage balance.

Mortgage Banker

A mortgage banker is a specialized form of mortgage lender that lends its own money to borrowers as secured mortgage loans. Mortgage bankers are typically large financial institutions such as banks or credit unions. Mortgage bankers make a profit on the money they lend to borrowers by charging them an interest rate that is applied to the principal of the loan over the loan's life.

Mortgage bankers differ from general mortgage lenders because they deal directly with the public, they do not go through middlemen like traditional mortgage lenders do. Because of this, mortgage bankers are often able to offer their customers lower rates than they could get through a mortgage broker.

Mortgage Broker

A mortgage broker is a company that markets (or originates) mortgage loans from one or more mortgage lenders. Unlike a mortgage banker or mortgage lender, a mortgage broker does not lend any of its own money. Instead, it is exclusively a marketing company. Mortgage brokers typically represent many mortgage lenders, so they can offer their customers a wider variety of programs than a single mortgage banker could.

Mortgage Lender

A mortgage lender is a company or individual who loans mortgage money to a borrower. Mortgage lenders are typically either large financial institutions like banks or credit unions, or private investors. Mortgage bankers make a profit on the money they lend to borrowers by charging them an interest rate that is applied to the principal of the loan over the loan's life. Unlike mortgage bankers, mortgage lenders typically do not deal directly with the public. Instead, they make their loans available to the public through mortgage brokers (similar to how car companies make their cars available to the public through car dealers).

Points

A point refers to 1 percent of the total mortgage loan amount. Several types of fees associated with mortgages are discussed in terms of points. These are typically service fees charged by the mortgage banker or broker who the borrower is getting the mortgage loan from.

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