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Here are a few terms and their associated meanings that should help out a person thinking about refinancing their mortgage. It is a great time in the market to Refinance.
Escrows – Mortgage industries offer the service to roll hazard (homeowners) insurance and property taxes into their mortgage payment so that they can pay these payments monthly rather than pay as a lump sum at the end of the year. This process of rolling the hazard insurance and property taxes into your mortgage is called ESCROW.
Loan to Value – This is an industry term that represents the percentage of equity that each homeowner has in their property. If you have a house worth $150,000 and a mortgage of $123,000, then the loan to value would be the division of the two or 82%.
Private Mortgage Insurance (PMI) – PMI is the insurance paid by a homeowner so that if unable to pay the mortgage payment, they won’t lose their house. Typically a home with a mortgage greater than 80% loan to value requires private mortgage insurance. Unlike mortgage payments, PMI is not tax deductible. The Mortgage Specialists have a variety of methods to eliminate this payment.
Principal & Interest, Taxes & Insurance – These are the values used to calculate the front end ratios. For the back end, you would add the total other monthly payments, before dividing by income.
Ratios – The industry uses ratios to determine if you can financially manage a conventional mortgage. Mortgage companies use two ratios to determine your standing: front end and back end. The front end is calculated by taking your monthly mortgage payment (including hazard insurance and property tax) and divide by your total gross monthly income. The back end is calculated in the same way, only you add all other monthly payments to the mortgage payment before dividing. Most industries like your front end to be below 32% and the back end to be below 40%, although exceptions can sometimes be made.
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