Reading a term sheet: what is fixed and what can still change

A term sheet is a lender's written summary of what it would lend and on what terms. It is not a commitment. It says: we are interested, on these terms, if what you told us checks out.

Treating one as an approval is how people end up committed to a purchase they cannot complete.

The lines, and what each really means

Loan amount. Usually written as "up to". The appraisal decides the real number.

Rate. Fixed or floating? For how long? "Subject to lock" means it can move between now and closing.

Points. Origination, paid at closing, on top of the interest rate. Two points on $324,000 is $6,480 in cash on the day.

Term. Twelve months? Thirty years? Is there a balloon — a date when the remaining balance is due in full?

Amortisation. Interest-only, or paying the balance down? Interest-only keeps the payment low and the balance unchanged.

Prepayment penalty. A fee for repaying early. Often written as a step-down like 3-2-1: 3% in year one, 2% in year two, 1% in year three. If you plan to sell in eighteen months, a five-year penalty is a serious cost.

Fees. Underwriting, processing, legal, draw inspections. Ask for the complete list, not the headline two.

Reserves. Months of payments you must still hold after closing.

Conditions. The list of things that must be true before funding.

The sentence to read twice

Subject to satisfactory appraisal at a value of not less than $500,000.

If the appraisal comes in at $460,000, the loan amount changes, your loan-to-value changes, and your cash to close goes up. Everything above that line is provisional on the lines below it.

Turn it into the two numbers you care about

A term sheet is not useful until it is translated:

1. What leaves my account each month?
2. What do I bring to the closing table?

$324,000 at 11.5% interest-only is $3,105 a month. Cash to close is your share of the purchase, plus $6,480 of points, plus closing costs — call it $52,000. Those two numbers are the decision; the rest is detail.

Where it sits in the process

Term sheet → underwriting → commitment letter → clear to close → funding.

A commitment letter is the real approval, and even that carries conditions. A term sheet is two steps earlier than most borrowers assume.

Questions worth asking before you sign

• What can still change this, and what would trigger it?
• Is the rate locked, and for how long?
• What is the complete fee schedule?
• What happens if I need an extra thirty days?
• How do I get the prepayment penalty removed, and what does that cost in rate?

A broker's job is to get you several of these and translate all of them into the same two numbers, so you are comparing like with like. Start a conversation.