A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan.

1. Renovo Financial

2. What is Mortgage Loan
A loan that is secured by property or real estate is called a mortgage.
In exchange for funds received by the homebuyer to buy property or
a home, a lender gets the promise of that buyer to pay back the
funds within a certain time frame for a certain cost. The mortgage is
legally binding and secures the note in giving the lender the right to
have legal claim against the borrower’s home if the borrower
defaults on the terms of the note. Basically, the borrower has
possession of the property or the home, but the lender is the one
who owns it until it is completely paid off.

3. Fixed-Rate Mortgages
An interest rate on a liability, such as a loan or mortgage, that remains fixed either for the entire term of
the loan or for part of this term. A fixed interest rate may be attractive to a borrower who feels that the
interest rate might rise over the term of the loan, which would increase his or her interest expense. A
fixed interest rate, therefore, avoids the interest rate risk that comes with a floating or variable interest
rate, wherein the interest rate payable on a debt obligation depends on a benchmark interest rate or
index.
While a home buyer in the United States can obtain a mortgage with a fixed interest rate for the full 30-
year term of his or her mortgage, in USA, a home buyer can only "lock in" or obtain a fixed interest rate
for a maximum of five to seven years of a 25-year mortgage.
Borrowers are more likely to opt for fixed interest rates during periods of low interest rates, since the
opportunity cost, if interest rates go lower, is still much less than during periods of high interest rates.

4. Principal:-
1. The amount borrowed or the amount still owed on a loan, separate from interest.
2. The original amount invested, separate from earnings.
3. The face value of a bond.
4. The owner of a private company.
5. The main party to a transaction, acting as either a buyer or seller for his/her own account and risk.
Interest:-
The charge for the privilege of borrowing money, typically expressed as an annual percentage rate.
The amount of ownership a stockholder has in a company, usually expressed as a percentage.
Lenders make money from interest, borrowers pay it.
Someone who holds more than 5-10% of the stock in a company is said to hold significant interest.
Interest is commonly calculated using one of two methods:
simple interest calculation
compound interest calculation.

5. Plain Vanilla:-
The most basic or standard version of a financial instrument, usually options, bonds, futures and swaps.
Plain vanilla is the opposite of an exotic instrument, which alters the components of a traditional
financial instrument, resulting in a more complex security.
For example:- a plain vanilla option is the standard type of option, one with a simple expiration date and
strike price and no additional features. With an exotic option, such as a knock-in option, an additional
contingency is added so that the option only becomes active once the underlying stock hits a set price
point.
Prepayment Penalty:-
A clause in a mortgage contract that says if the mortgage is prepaid within a certain time period, a
penalty will be assessed. The penalty is usually based on percentage of the remaining mortgage balance
or a certain number of months worth of interest.
A prepayment penalty that applies to both the sale of a home and a refinancing transaction is called a
"hard" prepayment penalty. A prepayment penalty that applies to refinancing only is called a "soft"
prepayment penalty.
Lenders write prepayment penalties into mortgage contracts to compensate for prepayment risk. As the
incentive for a borrower to refinance a subprime mortgage is high, many subprime mortgages have
prepayment penalties.
A borrower should be aware of the risks associated with a prepayment penalty. A prepayment penalty
can substantially increase the cost of refinancing a mortgage when it would otherwise be economical.

6. Variable-Rate Mortgages
When to Choose a Variable-Rate Loan
Variable-rate loans are generally the recommended option for people who anticipate declining interest
rates, only plan to live in a particular home for a limited number of years, or anticipate being able to pay
off their mortgages before the interest rate adjustment period is reached. Although they are often used
by borrowers seeking to purchase more home than they can actually afford, this is not the financially
prudent way to borrow money.
Likewise, even when a variable-rate mortgage is more cost effective than a traditional loan and the
borrower can afford the property being purchased, the borrower also needs to be comfortable with the
potential for the interest rate to increase and the payment to go up. If the thought of higher payment
would keep you up at night, you might want to reconsider your choice of loan. While variable-rate loan
are certainly more complicated than fixed-rate loans and are not the right choice for everyone, they can
be a powerful tool that results in significant financial savings.
Adjustable-Rate Mortgage
A type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific
benchmark. The initial interest rate is normally fixed for a period of time after which it is reset
periodically, often every month. The interest rate paid by the borrower will be based on a benchmark plus
an additional spread, called an ARM margin.
An adjustable rate mortgage is also known as a "variable-rate mortgage" or a "floating-rate mortgage".
Both 2/28 and 3/27 mortgages are examples of ARMs. A 2/28 mortgage's initial interest rate is fixed for a
period of two years and then resets to a floating rate for the remaining 28 years of the mortgage. A 3/27
mortgage is typically the same as a 2/28 mortgage, except that the interest rate is fixed for three years and
then floats for the remaining 27 years of the mortgage.

7. Costs
People generally think about a mortgage in terms of the monthly payment. While that payment
represents the amount of money needed each month to cover the debt on the property, the payment
itself is actually made up of a series of underlying expenses.
Regardless of whether a mortgage is based on a fixed-rate loan or a variable-rate loan, the series of
underlying components that combine to equal the amount of the monthly payment typically includes
both principal and interest. Principal simply refers to the amount of money originally borrowed. Interest is
a fee charged to the borrower for the privilege of borrowing money.
In a mortgage made up of just principal and interest, the payment will remain the same over time, but the
amount of the payment dedicated to each of the underlying components will change. Consider, for
example, a $1,000 monthly mortgage payment. The initial years of a mortgage payment consist primarily
of interest payments, so the first payment might be $900 dollars in interest and $100 in principal. In later
years, this equation reverses, because after each mortgage payment, a portion of the initial amount owed
is reduced. Therefore, the majority of the monthly payment at this point in time goes towards principal
repayments. Toward the end of the life of the mortgage, the $1,000 payment might consist of $900 in
principal and $100 in interest.
The subcomponents of most, but not all, mortgages also include real estate taxes and insurance.

8. Closing Costs:-
Down Payment:-
A type of payment made in cash during the onset of the purchase of an expensive good/service. The
payment typically represents only a percentage of the full purchase price; in some cases it is not refundable
if the deal falls through. Financing arrangements are made by the purchaser to cover the remaining amount
owed to the seller.
Making a down payment and then paying the rest of the price through installments is a method that makes
expensive assets more affordable for the typical person.
For example because houses are extremely expensive assets, home buyers typically pay down payments
that equal 5-25% of the total value of a home. The remaining 75-95% of the price will be covered by a bank
or other financial institutions through a mortgage loan.
The expenses, over and above the price of the property that buyers and sellers normally incur to complete a
real estate transaction. Costs incurred include loan origination fees, discount points, appraisal fees, title
searches, title insurance, surveys, taxes, deed-recording fees and credit report charges.
Also known as settlement costs.
Closing costs are separated into two categories: nonrecurring closing costs and prepaid costs. Nonrecurring
costs are one-time costs associated with buying a property or obtaining a loan. Prepaid costs are those that
recur over time, such as property taxes and homeowners' insurance. These costs are estimated by the
lender on what is called a "good-faith estimate", which the lender must issue to the borrower within three
days of a home loan application.
Property Tax
A tax assessed on real estate by the local government. The tax is usually based on the value of the property
(including the land) you own.

9. Loan Eligibility
It's a critical question that every homebuyer faces, and one that many
people answer by going to a lender and taking out the largest mortgage
that the lender will approve. While this strategy will help you get the
largest, most expensive house that you can qualify for, being eligible for a
loan and being able to afford
From a lender's perspective, loan eligibility is based on a formula. The most common rule of thumb is
that your monthly mortgage payment should not exceed 28% of your gross income. This calculation
includes more than just the base price of the house. Consider, for example, a $50,000 gross income.
Based on 28% of that amount, the mortgage payment would be $14,000 per year or $1,166.66 per
month. That $1,166.66 needs to cover all four potential components of a mortgage:
principal, interest, taxes and insurance, often referred to as PITI.
If your credit history is good, the lender may let you take out a mortgage with a monthly payment
equal to 30% or even 40% of your gross monthly income. In our example, 40% would get you a yearly
mortgage payment of $20,000 or $1,666.66 per month. The $500 per month difference would let you
afford a more expensive home, but you should take a close look at your finances before making such a
decision.
Gross Income
An individual's total personal income before taking taxes or deductions into account.
A company's revenue minus cost of goods sold. Also called gross margin and gross profit.

10. How To Get A Mortgage Loan
Once you've learned the terminology and figured out how much you can afford to spend on a new
house, the next thing you will need to do is get a mortgage. Because you will be borrowing
money, lenders will examine your credit score, a metric used by lenders to determine the likelihood of
an individual paying back the money he or she has borrowed.
credit score:
A statistically derived numeric expression of a person's creditworthiness that is used by lenders to access the
likelihood that a person will repay his or her debts. A credit score is based on, among other things, a person's
past credit history. It is a number between 300 and 850 - the higher the number, the more creditworthy the
person is deemed to be.
A FICO score is the most widely used credit scoring system. FICO is an acronym for Fair Isaac Corporation, the
company that provides the credit score model to financial institutions. There are other providers of credit scoring
systems as well. Consumers can typically keep their credit scores high by maintaining a long history of always
paying their bills on time and not having too much debt.
A credit score plays a large role in a lender's decision to extend credit and under what terms. For example,
borrowers with a credit score that is under 600 will be unable to receive a prime mortgage and will typically need
to go to a subprime lender for a subprime mortgage, which will typically have a higher interest rate.

11. Pre-Qualification and Pre-Approval
To get a good idea of how much you can borrow, a lender can pre-qualify you for a mortgage. To pre-
qualify, you meet with a lender and provide information about your assets, income and liabilities. Based
on that information, the lender will provide an estimate how much money you will be able to borrow.
Knowing this amount beforehand will allow you to determine the price range of homes before you go
house hunting.
The entire pre-qualification process is informal. The lender does not verify the information
provided, does not charge you a fee and does not formally agree to approve a mortgage for the amount
you are pre-qualified to borrow.
However, if you are serious about buying a house, you will want to get pre-approved for a loan. With pre-
approval, the lender checks your credit, verifies your financial and employment information and confirms
your ability to qualify for a mortgage. Pre-approval strengthens your position to make an offer when you
find a property that you like. Sellers are generally more willing to accept offers from pre-approved
buyers, because it shows that the buyer actually possesses sufficient resources available to purchase the
house.

12. Contact Us
Address
Renovo Financial, LLC
1016 W. Jackson Blvd., Suite 316 Chicago ,
IL60607 USA
Phone : 312.243.3288
Fax : 773-442-0600
E-mail : drosen@renovofinancial.com
www.renovofinancial.com