Question 1

What are points?

Accepted Answer

A point equals one percent of your loan amount and is typically paid at closing. Discount points lower your interest rate — the more points you pay upfront, the lower your rate. If you plan to stay in your home for five or more years, paying points can be worthwhile. Points paid on a primary residence purchase are generally tax-deductible; consult a tax advisor for your specific situation.

Question 2

What is an APR?

Accepted Answer

The Annual Percentage Rate (APR) reflects the true cost of a loan expressed as a yearly rate. It includes the interest rate plus fees and other costs, making it useful for comparing loan offers side by side. The APR doesn't affect your monthly payment — that's determined by your interest rate and loan term — but it gives you a more complete picture of what you're paying overall.

Question 3

What is PMI, and can I get rid of it?

Accepted Answer

Private Mortgage Insurance (PMI) is typically required when you purchase a home with less than 20% down. It protects the lender — not you — against losses in the event of foreclosure. Once your loan balance drops to 80% of the original property value, you can usually request PMI cancellation, though some lenders require a minimum of one to two years of payments first. Refinancing into a new loan without PMI is another option if you've built sufficient equity.

Question 4

What is the difference between pre-qualifying and pre-approval?

Accepted Answer

Pre-qualification is an estimate of how much you may be able to borrow based on information you provide to a loan officer — but it is not a commitment to lend. Pre-approval goes further: your credit, employment history, and assets are verified and reviewed by an underwriter. A pre-approval letter carries significantly more weight with sellers and allows you to close more quickly once you find a home.

Question 5

Can my loan be sold after closing?

Accepted Answer

Yes. Mortgages are regularly bought and sold on the secondary market, which helps keep rates lower for borrowers. If your loan is sold, the terms — your interest rate, monthly payment, and loan balance — do not change. The only difference is where you send your payment. Your lender is required to notify you in advance of any transfer and provide information about the new servicer.

Question 6

Should I refinance?

Accepted Answer

Refinancing may make sense for several reasons: securing a lower interest rate, shortening your loan term, accessing cash from your equity, converting an adjustable-rate loan to a fixed rate, or consolidating higher-interest debt. A simple way to evaluate a rate-and-term refinance is to divide total closing costs by your monthly savings — that's your break-even point. Every situation is different, and a Royal United loan expert can help you run the numbers.

Question 7

What are the most common refinancing mistakes?

Accepted Answer

Staying with your current lender without shopping for better programs or rates. Pulling cash out of a home equity line before refinancing — this can trigger cash-out seasoning requirements that complicate or delay your loan. Getting a second mortgage before refinancing your first, which may cause your refinance to be denied. Skipping a break-even analysis: divide total closing costs by your monthly savings to see how long the refinance takes to pay off. Not getting written good-faith estimates of closing costs before committing. Using a county tax-assessed value instead of an actual market appraisal to estimate your equity. Signing final loan documents without reviewing them in advance. Waiting too long to provide required documents, which can cause costly delays or rate lock expirations.

Question 8

What are the most common home equity mistakes?

Accepted Answer

Not checking whether your loan has a prepayment penalty — this can be costly if you plan to pay it off early. Accepting the first offer from your current bank without comparing other lenders. Opening a credit line larger than you need, which can affect your debt-to-income ratio and disqualify you from other financing. Confusing equity loans (lump sum, fixed payments) with equity lines (revolving access, variable payments). Overlooking the lifetime interest rate cap on lines of credit, which can reach 18% or higher. Not getting written good-faith estimates within three business days of your application. Assuming home equity interest is always tax-deductible — consult a CPA for your situation. Getting a second mortgage before refinancing your first, which can cause the refinance to be denied. Using an equity line to pay off credit card debt without also addressing the spending habits that created it.

Question 9

What is a FICO score?

Accepted Answer

A FICO score is a credit score developed by Fair Isaac & Co. that compresses your credit history into a single number lenders use to assess risk. Because there are three major credit bureaus — Equifax, TransUnion, and Experian — you have three FICO scores. Key factors include payment history, outstanding balances relative to credit limits, length of credit history, recent applications for new credit, and any negative marks such as collections or bankruptcies.

Question 10

How can I improve my FICO score?

Accepted Answer

Pay all bills on time — payment history is the single largest factor in your score. Avoid applying for multiple new credit accounts in a short period. Pay down credit card balances to reduce your credit utilization rate. If your credit history is limited, a secured card or becoming an authorized user on a trusted account can help build it.

Question 11

What if there is an error on my credit report?

Accepted Answer

You have the right to dispute inaccurate information directly with each of the three major credit bureaus: Equifax (1-800-685-1111), TransUnion (1-800-916-8800), and Experian (1-888-397-3742). Bureaus are required to investigate disputes within 30 days. A Royal United loan advisor can also help you identify and address credit report errors during the mortgage process.

Question 12

Why do mortgage rates change?

Accepted Answer

Mortgage rates are driven by supply and demand for credit, inflation expectations, and the overall health of the economy. A slowing economy or rising unemployment tends to push rates down; strong growth and inflation push rates up. The Federal Reserve doesn't set mortgage rates directly, but its policy decisions influence the broader interest rate environment. Key indicators that move rates include the Consumer Price Index, unemployment figures, housing starts, retail sales, and GDP data.

Mortgage questions, answered.

A Royal United loan expert can walk you through anything.