If your loan includes a prepayment penalty, be aware of the penalty you would have to pay.Prepayment penalty Extra fees that may be due if you pay off the loan early by refinancing your home.Interest The price paid for borrowing money, usually given in percentages and as an annual rate. Just like CD rates earning interest income.

Interest caps come in two versions: periodic caps, which limit the interest-rate increase from one adjustment period to the next, and overall caps, which limit the interest-rate increase over the life of the loan.No one can be sure when an index rate will go up or down.Margin The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

The interest that is not paid in the monthly payment is added to the loan balance.Amortizing loan Monthly payments are large enough to pay the interest and reduce the principal on your mortgage.This means that even after making many payments, you could owe more than you did at the beginning of the loan.

The index is the measure of interest-rate changes that the lender uses to decide how much the interest rate on an ARM will change over time.These fees may make it too expensive to get out of the loan.Equity The difference between the fair market value of the home and the outstanding mortgage balance.

You should ask your lender how the index for any ARM you are considering has changed in recent years, and where the index is reported.Negative amortization Occurs when the monthly payments do not cover all the interest owed.Cap, payment A limit on how much the monthly payment may change, either each time the payment changes or during the life of the mortgage.

Cap, interest rate A limit on the amount your interest rate can increase.Adjustable-rate mortgage (ARM) A mortgage that does not have a fixed interest rate.The actual expenses at closing may be somewhat different from the good faith estimate.

The rate changes during the life of the loan in line with movements in an index rate, such as the rate for Treasury securities or the Cost of Funds Index.By law, virtually all ARMs must have an overall cap.Ask the lender if you can get a loan without a prepayment penalty, and what that loan would cost.

Good faith estimate The Real Estate Settlement Procedures Act (RESPA) requires your mortgage lender to give you a good faith estimate of all your closing costs within 3 business days of submitting your application for a loan, whether you are purchasing or refinancing a home.

Today’s bank mortgage rates were forced down to record lows to help the housing market and home prices. Although low refinance rates haven’t stopped home prices from dropping now is one of the best times ever to refinance since rates are so low. 

If your looking to by a home now is also a good time to buy because homes are so much more affordable. In late 2010 after several years of home prices declines, homes became the most affordable on record.

Many current home owners acted on these low rates and refinanced their mortgage. If you’re current mortgage rate is at least 1 percent higher than current refinance rates available you should refinance. So right now you can get refi rates between 4.00 percent and 6.00 percent for a 30 year mortgage. The rate you receive depends a lot on your credit score and how many points you want to pay upfront.

You might be one of the many home owners who are unable to take advantage of low rates to refinance your mortgage because you don’t have enough equity in their home. Some people actually owe more on there mortgage than their home is worth which makes refinancing impossible because no lender will lend you more money than the home (asset) is worth.

Refinance rates hit record lows in the fourth quarter of 2010 and have since pretty much stayed near record lows. In the fourth quarter conforming 30 year mortgages hit an all time low of 4.09 percent according to Freddie Mac.

Today’s refinance rates on conforming 30 year mortgages aren’t much higher than the historic lows.