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Frequently Asked Questions:
What is private mortgage insurance (PMI)?
Private mortgage insurance (PMI) is a type of insurance that helps
protect the mortgage company against losses due to foreclosure. It
is paid on installments as part of the mortgage payment. This
protection is provided by private mortgage insurance companies and
allows mortgage companies to accept lower down payments than would
normally be allowed. PMI is typically required when the amount of
your loan exceeds 80% of the subject property's value.
What are "points"?
By paying "points", a borrower may lower the interest rate
for the entire term of the loan. One "point" is equal to
one percent, i.e., on a loan amount of $100,000.00, one point would
equal $1,000.00. The cost of points is paid at closing. When a
borrower pays "points" it is considered "pre-paid
interest" by the lender and is therefore tax deductible. If a
borrower chooses to pay no "points" they will be given the
market, or "par" interest rate.
What is title insurance?
All lenders require Title Insurance because it protects their lien
against the property. The policy insures the lender that any
previous liens, or encumbrances against the property have been
cleared and their lien is in first position. The premium for Title
Insurance is a one time fee and paid at closing.
What are escrows?
For each new mortgage, an escrow account is set up in which the
lender will deposit the portion of the borrower's monthly payment
which is to be set aside for taxes and homeowner's insurance. At
closing, the pro-rated amounts (based on the date taxes and/or
insurance premiums fall due) are collected for the initial deposit
into the escrow account. Escrows are sometimes referred to as
reserves or impounds.
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