Loan Purpose
Encyclopedia
Pertaining to mortgages
and their risk based pricing factors, the loan purpose factor is sub-categorized by purchase, Rate & term refinance and cash-out refinance.
Lenders assess that a purchase loan contains the least amount of risk and thus 'price' purchase loans most favorably (i.e. no interest rate
increase or a risk-based pricing improvement in the order of .25%).
Rate & term refinances are priced similar to purchase loans, with no interest rate increase. Cash
received by the borrower at closing may not exceed $2000 to maintain rate & term status. The purpose is, as the name implies, to reduce the interest rate, payment, and/or overall term of the mortgage.
Cash-out refinances are deemed to have a higher risk factor than either rate & term refinances or purchases due to the increase in loan amount relative to the value of the property
. Risk-based pricing typically mandates a .25% to .5% increase in interest rate if a borrower needs to pull equity
out of the subject property.
Mortgage loan
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...
and their risk based pricing factors, the loan purpose factor is sub-categorized by purchase, Rate & term refinance and cash-out refinance.
Lenders assess that a purchase loan contains the least amount of risk and thus 'price' purchase loans most favorably (i.e. no interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
increase or a risk-based pricing improvement in the order of .25%).
Rate & term refinances are priced similar to purchase loans, with no interest rate increase. Cash
Cash
In common language cash refers to money in the physical form of currency, such as banknotes and coins.In bookkeeping and finance, cash refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately...
received by the borrower at closing may not exceed $2000 to maintain rate & term status. The purpose is, as the name implies, to reduce the interest rate, payment, and/or overall term of the mortgage.
Cash-out refinances are deemed to have a higher risk factor than either rate & term refinances or purchases due to the increase in loan amount relative to the value of the property
Property
Property is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation...
. Risk-based pricing typically mandates a .25% to .5% increase in interest rate if a borrower needs to pull equity
Ownership equity
In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...
out of the subject property.