Welcome to English as a Second Language podcast number 1070, Getting a Mortgage Loan.
This is English as a Second Language podcast episode 1070.
I'm your host, Dr. Jeff McQuillan.
If you do, you can download a learning guide for this episode.
This episode is a dialogue between Kiko and Raphael about getting a mortgage loan, getting money to buy a house.
Let's get started.
Figuring out how to fill out this mortgage loan application is is like trying to read a foreign language.
I don't know what all these terms mean.
Let's see if we can figure it out together.
I think we want a fixed rate mortgage, not an adjustable rate mortgage.
We want to lock in a good annual percentage rate and not worry about the rate going up.
All right.
I think that's what we want.
We want the principal and interest payments to be predictable.
That's right.
And what are points?
It looks like we have to get an appraisal of the house we want to buy.
Do we have to pay for private mortgage insurance?
Not if we have a down payment of more than 20% of the price of the house.
Okay, so we don't need to worry about that expense.
But what about all these others?
Like what?
Like homeowners insurance and title insurance.
I'm not sure.
And what are balloon payments and prepayment penalties?
You got me.
And what's included in the closing costs?
I'm really out of my depth here.
Me too.
What should we do now?
Continue to rent?
Our dialogue begins with Kiko saying to Rafael figuring out how to fill out this mortgage loan application is like reading a foreign language.
Kiko and Rafael are filling out or completing putting information into A mortgage loan application.
A mortgage M-O-R-T-G-A-G-E loan L-O-A-N is money that you get from a bank, that you borrow from a bank, to buy a home, to buy a house or a condominium.
Kiko says that filling out the application is like trying to read a foreign language, meaning it's very difficult.
She can't understand what it is saying.
She says, Raphael says, Let's see if we can figure it out together.
Let's see if we can understand it together.
He says, I think we want a fixed rate mortgage, not an adjustable rate mortgage.
The rate, R-A-T-E, on a loan is the percentage of money that you have to pay on the loan.
So, for example, if you have a loan of 100 and the rate we would call it the interest rate is 10, that means you have to pay 10 on that loan.
Here we're talking about different kinds of rates, two different kinds of rates for a mortgage.
One is a fixed rate.
A fixed rate is when the bank tells you okay, we're going to give you 100000 or 500000 and you have to pay every year 5 interest.
And that will not change.
It will always be 5%.
It's fixed, F-I-X-E-D.
Another kind of mortgage loan you can get from a bank is called an adjustable rate mortgage.
The word adjustable comes from the verb to adjust, A-D-J-U-S-T.
To adjust means to change.
And an adjustable rate mortgage is a mortgage that has a changing rate.
So this year it might be 5%, but next year, depending on how the economy is doing, it might be 7%.
An adjustable rate mortgage is usually easier to get.
However, it's unpredictable.
You don't know what your interest rate is going to be 10 years from now.
Rafael is saying that he thinks they want to get a fixed rate mortgage.
He says we want to lock in a good annual percentage rate And not worry about the rate going up.
To lock in is a two-word phrasal verb meaning to agree with someone in this case the bank on a specific number or amount so that it can't be changed in the future.
If the bank says we're going to charge you five percent interest on your loan and you say okay, i want to lock in that rate, you're saying you want that rate to be fixed, you don't want it to move, you don't want it to change.
That's what Rafael is talking about.
He wants to lock in a good annual percentage rate.
The annual percentage rate is the interest rate for a given year, for each year that you have to pay the bank to have the money to borrow the money.
Kiko agrees.
She says...
All right, I think that's what we want.
We want the principal and interest payments to be predictable.
When you borrow money from a bank, there are two kinds of payments that you are making back to the bank.
The first is the principal, P-R-I-N-C-I-P-A-L.
The principal of a loan is... the actual money that the bank is giving you.
So if the bank is giving you $100, your principal on the loan is $100.
But of course, the bank isn't giving you the money for free.
You have to pay the bank to use its money.
The money that you pay the bank, the price of the loan, if you will, is the interest.
The interest is the money you pay to get the loan or the money you pay that the bank gets for giving you the loan.
Usually, when you have a mortgage loan in the United States or a car loan, you are giving the bank part of the principal back each time you send in money, but you're also giving them part of the interest.
Kiko says we want the principal and interest payments to be predictable.
To be predictable means you know what they're going to be in the future.
Predictable comes from the verb to predict P-R-E-D-I-C-T, which means to guess or estimate what will happen in the future.
Raphael agrees with her.
He says that's right.
Kiko then asks Raphael to explain to her the meaning of the word points, P-O-I-N-T-S.
Well, the word points can mean a couple of different things, but here, when we're talking about mortgage loans, it refers to an additional price that you have to pay in order to get the loan.
It's an additional price that you pay besides the interest for the loan.
Usually it's money that you have to give the bank before you even get the loan.
Points refers to a percentage of the loan that you have to pay as a fee to the bank.
So on our 100 loan we might have to pay 10 interest, which would be 10 every year that we have the loan.
But in addition, when we get the loan, we have to give the bank perhaps a dollar or two dollars.
Those payments would be called points, and they have to be usually paid when you first get the loan.
Raphael says that I think that has to do with fees for getting the loan.
And Rafael is correct.
Kiko then says it looks like we have to get an appraisal of the house we want to buy.
An appraisal, A-P-P-R-A-I-S-A-L, is an official estimate.
When someone comes in and says this is how much your house is really worth, you get an expert, someone who knows a lot about houses, to come and look at the house and say well, this house is worth 200000, or this condominium is worth 150000.
Most banks will ask an expert to go and look at your house and give it an appraisal.
The bank doesn't want to give you more money for the house than it's worth.
So the loan amount has to be less than the appraisal amount.
So if you want to borrow say 100000, on a condominium, and the bank sends a person out an expert whom we would call an appraiser to look at the condominium and the appraiser decides it's only worth 50000, the bank isn't going to give you a 100000 loan because the appraisal wasn't high enough to justify a loan of that size.
Rafael says, yes, that's standard, I think.
The expression here, that's standard, means that's normal.
That's what you normally have to do when you get a mortgage loan.
And again, Rafael is correct.
Kiko then asks, do we have to pay for private mortgage insurance?
Private mortgage insurance, sometimes abbreviated PMI, is basically insurance that you get in case, for some reason, you can't pay off your loan.
The bank wants to be sure it is going to get its money back.
So private mortgage insurance is money that you, the borrower, the person getting the money, has to pay in order to make sure that, in case there are any problems,
With your payments, the bank gets its money, from an insurance company in this case.
Raphael says, not if we have a down payment of more than 20% of the price of the house.
A down payment is money that you have to give the bank in order to get the loan to begin with.
Usually the down payment is a certain percentage of the price of the house.
It may be 10%, it may be 20%.
That means if you're buying a 200000 house and the bank says you have to make a 20 down payment, the bank is saying you have to give the bank 40000 before the bank will give you 20000 money to buy the rest of the house or to pay for the rest of the house.
So the forty thousand dollars is part of the price of the house.
But the money goes to the bank.
The bank wants to be sure that you are going to give them the rest of their money that they are loaning you.
Sometimes if you have a big down payment, if you put a large percentage of the cost of the house in as your down payment,
You don't have to buy the private mortgage insurance.
Kiko then says, okay, so we don't need to worry about that expense, that cost.
But what about all these others?
Rafael says, like what?
Kiko says, like homeowner's insurance and title insurance.
Homeowner's insurance is insurance you buy in case something bad happens to your house, in case you have a fire or there's an earthquake perhaps, which is not uncommon here in California.
Homeowner's insurance is insurance that will help you rebuild your house or fix your house in case it's damaged.
Title insurance refers to special insurance that you buy in case there's some problem with the legal documents related to the ownership of your house.
The title of a house or the title of a car refers is not the name of the house or the car.
It refers to the legal document, the legal agreement that says who owns this house or this car.
Kiko also asks about balloon payments and prepayment penalties.
A balloon, B-A-L-L-O-O-N, payment in the context of a mortgage loan, refers to a large amount of money that you have to pay at the very end of your loan period.
Let's say you have a loan for 10 years.
At the end of that 10 years.
Usually when you have a balloon payment, you have to give a large amount of money at the very end to pay off the loan.
Kiko also asks about prepayment penalties.
For some loans, you actually get a penalty if you pay the loan early.
That's the meaning of prepayment to give the bank more money than you are supposed to according to your agreement.
A penalty is a punishment, something you have to... pay usually in the case of a prepayment penalty.
It's extra money that you have to give the bank if you are paying your loan off.
That is, giving the bank back all of its money early.
Why does a bank charge prepayment penalties on mortgage loans?
Well, because they make more money if you continue to pay the interest on the loan every year.
So some banks have a prepayment penalty, but not all of them.
Rafael doesn't understand these terms, the ones about balloon payments and prepayment penalties.
That's why he responds to Kiko by saying, you got me.
You got me in this context means I don't understand either.
I don't know the answer to that question either.
Then Kiko asks, and what's included in the closing costs?
The closing costs are the expenses, the money that you have to pay when you the loan is approved.
In order to get your money from the bank to buy the house, you have to make sure all of the fees and costs of the loan are taken care of are paid for.
And that's what is referred to here as closing costs.
Closing costs are separate from the actual price of the home.
Once again, Raphael does not know the answer to this question.
He says, I'm really out of my depth, D-E-P-T-H, here.
If you are out of your depth, you don't understand something.
You are in a Situation where you don't know how to get out of it.
You don't know what you are doing, basically.
Kiko says, me too.
What should we do now?
Raphael asks, continue to rent?
In other words, instead of buying a house, they'll just continue renting, because getting a mortgage loan is too complicated for them.
Now let's listen to the dialogue, this time at a normal speed.
Figuring out how to fill out this mortgage loan application is like trying to read a foreign language.
I don't know what all these terms mean.
Let's see if we can figure it out together.
I think we want a fixed rate mortgage, not an adjustable rate mortgage.
We want to lock in a good annual percentage rate and not worry about the rate going up.
All right.
I think that's what we want.
We want the principal and interest payments to be predictable.
That's right.
And what are points?
I think that has to do with fees for getting the loan.
It looks like we have to get an appraisal of the house we want to buy.
Yes, that's standard, I think.
Do we have to pay for private mortgage insurance?
Not if we have a down payment of more than 20% of the price of the house.
Okay, so we don't need to worry about that expense.
But what about all these others?
Like what?
Like homeowner's insurance and title insurance.
I'm not sure.
And what are balloon payments and prepayment penalties?
You got me.
And what's included in the closing costs?
I'm really out of my depth here.
Me too.
What should we do now?
Continue to rent?
Our scriptwriter is never out of her depth when it comes to English.
We thank the wonderful Dr. Lucy Say.
From Los Angeles, California, I'm Jeff McQuillan.
Thank you for listening.
Come back and listen to us again right here on ESL Podcast.
English as a Second Language Podcast is written and produced by Dr Lucy Say, hosted by Dr Jeff McQuillan.
Copyright 2015 by the Center for Educational Development.
