Mortgage FAQs

• What is PITI ?
• What is an "Interest Rate Lock" ?
• What are Discount Points" ?
• What is Private Mortgage Insurance ?
• What is "Pre-Qualification" ?
• What is an "Accelerated Mortgage Payment Plan ?
• What service providers are used for the mortgage process ?

What is PITI ?

PITI is a term commonly used in the mortgage industry that stands for principal, interest, taxes, and insurance.  These are the components that make up your monthly mortgage payment to the lender.  PITI is part of the financial analysis to determine your ability to repay the mortgage along with your income and other expenses.

What is an Interest Rate Lock ?

This is a process where the mortgage lender guarantees a certain interest rate for a period of time thus allowing you to eliminate the risk of any market fluctuations in the interest rates during the length of the lock period. For example, you may pay a certain amount of money (or, points) to guaranteee your mortgage rate for 30 days or 60 days. Lenders can lose money on an interest rate lock because they are taking a risk by letting you lock in advance. If rates move higher, they are forced to give you the original rate at which you "locked."

Some lenders do offer free float-down locks ––i.e. you may lock the rate initially but if the interest rate drops during the period of your "lock," you will get the lower rate. But to protect himself, the lender may make you pay more for this option than just a straight rate lock.

What are Points or "Discount Points" ?

"Points" (often called "discount points") are upfront fees paid to the lender to reduce the interest rate.  A discount point is equal to 1% of the loan amount.

Typically, each point you pay for a 30-year loan lowers your interest rate by .125 of a percentage point. If the current interest rate on a 30-year mortgage is 7.00 percent, paying one point would lower the interest rate to 6.875.

It often makes sense to pay discount points if you plan to stay in your home for a long time.

What is Private Mortgage Insurance ?

Private Mortgage Insurance is a monthly insurance premium required by lenders for borrowers where the loan to value ratio exceeds 80%.

What is Pre-Qualification" ?

Pre-qualification is a process where the mortgage company makes an estimate as to the loan amount an individual may qualify for based on certain financial information supplied to the mortgage company.  This is a helpful tool when dealing with Realtors® who are interested in the credit worthiness of the buyer.

What is an Accelerated Mortgage Payment (bi-weekly) Plan ?  How much money can I save?

With a Bi-weekly mortgage program, you are charged one-half of your regular mortgage payment every two weeks.  This bi-weekly plan substantially reduces the amount of interest you will pay over the life of your home mortgage.  If you already have a home mortgage, while different mrotage lenders may offer various terms, you can often arrange to make bi-weekly mortgage payments without having to refinance your existing mortgage.

When you buy a home in the sarasota Florida real estate market or elsewhere with a traditional 30 year mortgage, you'll actually pay for your home 3 times (including all interest and principal). On a $150,000 mortgage at 7.25%, you'll pay $240,00 in interest on top of the $150,000 in principal for a total of $390,000.

Under a bi-weekly payment program, you will build equity in your new Sarasota home at over twice the rate of a monthly payment plan.  After 10 years of making payments, your equity in your home would be over two and one-half times that of a normal monthly plan and you'll save over $70,000 in interest over the traditional 30 year mortgage program.

What service providers are used for the mortgage process ?

Appraisers, title companies, underwriters and lenders are all key participants in today's mortgage process. You, or your mortgage provider may require the involvement of a professional home inspector involved. Depending upon the conventions in your locality, you may also expect to employ the services of a real estate attorney. Your Realtor® can help you identify trustworthy parties for each of these important roles.