Financing and Mortgages
The two instruments
The note is the borrower's promise to pay; the mortgage (or deed of trust) pledges the property as security - hypothecation. Indiana is a lien-theory state: the borrower keeps title and the lender holds a lien, and mortgage foreclosures are judicial, through the courts.
Loan vocabulary and math
LTV = loan ÷ value; down payment = value minus loan. PITI is principal, interest, taxes, and insurance, plus mortgage insurance and HOA dues. A point is 1% of the loan amount; discount points are prepaid interest, while origination fees pay the lender. PMI protects the lender and must terminate at 78% LTV by the amortization schedule, with cancellation available on request at 80%. FHA charges MIP, VA charges a funding fee and requires entitlement, and conventional loans may be conforming or jumbo.
ARMs and disclosure rules
An ARM has an index plus margin, initial/periodic/lifetime caps, and an adjustment period. Truth in Lending requires the APR and a Closing Disclosure at least three business days before closing; RESPA bars referral kickbacks and regulates escrow accounts.
Traps
Confusing a mortgage with a deed of trust. Forgetting a due-on-sale clause makes an unapproved assumption a default. Junior liens are wiped out by foreclosure. Assuming discount points and origination points are the same thing. ARM cap arithmetic and PMI cancellation thresholds are the classic calculation traps.
Rule of thumb
For an ARM, add the initial cap to the start rate, then apply the periodic cap each adjustment until the lifetime cap stops you.