What Is A Mortgage?
A mortgage is a binding legal document you sign when purchasing or refinancing a home. This document, together with a Promissory Note that you also sign, outlines the details of a loan including the loan term and the amount of each payment. The mortgage process provided by a bank or institution, helps you purchase or refinance a home.
The word "mortgage" originates from the Latin word mort, meaning death or "yours until you die." Despite the terminal connotation, buying a home is an exciting and lively milestone, but figuring out how to pay for it can be stressful. At Santander Bank, it doesn't have to be. We are happy to walk you through the mortgage process educating you along the way. Continue reading to learn more about mortgages or contact a mortgage specialist near you to find out more information.
How do mortgage interest rates and points work?
A point is equal to 1% of the loan amount. For example, one point on a $100,000 loan is $1,000. Three points equals $3,000. Points are typically used to secure a lower interest rate.
When it comes to points, you have three options:
- Pay no points, in what's called a zero point mortgage
- Pay points at closing to receive a lower interest rate
- Have points paid to you (also called lender credits) and use them to cover a portion of your closing costs
Lenders may offer different interest rates on loans, depending on the number of points you're willing to pay. You'll need to choose the option that's financially right for you.
Learn more about mortgage points.
How much home can I afford?
How much home you can afford is largely dependent on your personal financial situation and appetite for monthly payments. It is also influenced by how much your lender is willing to approve, given your annual income, credit score and other credit related factors.
Use the following ideas to put together your own evaluation:
- Use the calculator below to estimate your monthly home payment, using a purchase price that reflects the size and location of the properties you're considering.
- Using that number, calculate the percentage of your income that will go toward your monthly home payment.
- Don't forget to include mortgage-related expenses, including property taxes, mortgage insurance and homeowner's insurance. Take a look at our glossary of terms for a detailed explanation of each of these items.
- Look at your estimated payment in relation to your budget. Will you have sufficient funds to cover your other required monthly expenses?
Click to calculate, How much mortgage you can afford.
Final steps in the mortgage process
You're in the home stretch! You've chosen your home, your offer has been accepted and you've applied for your mortgage. Now you need to take a few final steps:
- Find a home inspector to evaluate the condition of the house you've chosen.
- Review your Loan Estimate to make sure it's consistent with the decisions you've made.
- Review your Closing Disclosure, a document that covers all the details about your loan, its key terms and how much you're paying in fees and other costs.
How do I finalize my mortgage decision?
What's next after finding a home and evaluating your mortgage options? Finalizing your mortgage application requires two important milestones: expressing your "intent to proceed" and deciding whether to lock in your interest rate. Here's how it works:
Your lender will provide you with a Loan Estimate, which includes your loan amount and estimated monthly payments, before you make any final commitments.
Once you've selected your mortgage option, your next move is to tell the loan officer that you want to move forward with your application. This is called expressing your "intent to proceed". You don't need to pay most fees until you actually take this step.
Your Loan Estimate may indicate an interest rate that has been "locked" or a rate that is "floating" -- which means it can go up or down before your loan closing. This is different than an adjustable rate on the mortgage. You can request a "rate lock" for a defined time period to ensure that your rate remains the same, regardless of daily changes in mortgage rates.
Rate locks are typically available for 60 days. The downside to a "rate lock" is that it may be expensive to extend if finalizing your transaction requires more time. And, a rate lock may lock you out of better pricing if interest rates happen to fall before you close.
The interest rate on your Loan Estimate is not a guarantee. If your rate is floating and is later locked, your interest rate will be set at that later time. Also, if there are changes in your application-including your loan amount, credit score or verified income-your rate and terms will probably change too. In those situations, the lender provides you with a revised Loan Estimate.
A Santander Mortgage Specialist can walk you through this part of the process and provide more details.
Santander Bank does not provide financial, tax or legal advice and the information contained in this article does not constitute tax, legal or financial advice. Santander Bank does not make any claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained in this article. Readers should consult their own attorneys or other tax advisors regarding any financial strategies mentioned in this article. These materials are for informational purposes only and do not necessarily reflect the views or endorsement of Santander Bank.