When it comes to getting a new home mortgage, there is a lot of information to digest. Read on to find answers to some of the more common mortgage and home loan questions.
Unfortunately, industry advertisers often launch marketing campaigns that offer a low “teaser” interest rate simply to make the phone ring. This unusually low rate may only be available for a specific loan program that fits a small pool of qualified borrowers, but they won't tell you that upfront.
The truth is that mortgage interest rates are not controlled by lenders, and can fluctuate up to several times in any day. Once you understand how rates are determined, you'll feel more comfortable about your mortgage interest rate and the home financing process.
Keep in mind that although loan programs, credit scores and economic factors affect the mortgage interest rate you're offered, the borrower always has the option of paying a one-time, upfront fee to secure a lower interest rate.
“Interest rate” is the monthly cost you pay on the unpaid balance of your home loan.
“Annual Percentage Rate (APR)” The Annual Percentage Rate (APR) of a loan is actually 'the cost of borrowing money. It includes both your interest rate and any additional costs or prepaid finance charges, including such items as an origination fee, points, private mortgage insurance, underwriting and processing fees. The actual fees on your mortgage may not include all of the items above.
While your interest rate is the rate at which you will make your monthly mortgage payments, the APR is a universal measurement that can assist you in comparing the cost of mortgage loans offered by different mortgage lenders.
The “LTV” or Loan-to-Value ratio tells you how much equity you have in your home. Equity is the difference between how much your home is worth and how much you owe on it. For example, if your home is worth $250,000 and you owe $200,000 on your mortgage, you have $50,000 worth of equity in your home. To determine your LTV, divide your current loan amount by your home’s value. In this case, your LTV would be 80%.
LTV is important in determining your qualification for a home mortgage and the rate you receive. In general, the lower your LTV, the lower your rate will be. A higher LTV indicates that there is a greater risk the borrower may default on the loan.
With Wallick & Volk, there is absolutely no charge for getting pre-qualified for your home mortgage. Further, you are not under any obligation to use this site to apply for a loan, whether you use it to review interest rates and terms for a loan, or to get loan pre-qualification.
Technically, a conventional loan is any mortgage that is not a government-guaranteed or insured FHA, VA or USDA loan. However, when a lender mentions a conventional loan they are generally referring to a conforming mortgage that is eligible for purchase by Fannie Mae and Freddie Mac.
The terms and conditions of a conforming loan meet the standards of Freddie Mac and Fannie Mae (GSEs); and are eligible for purchase by the GSEs. Non-conforming loans are conventional (not government-insured) loans that do not meet GSE guidelines. Examples are Jumbo, sub-prime, construction and portfolio loans.
Because the rate on an ARM loan can adjust, they are typically offered with a lower introductory rate. ARM loan rates are tied to one of several indexes, such as the London Inter-Bank Offer Rate (LIBOR) or the Treasury Bill index. Some initial ARM interest rates and payments vary greatly from rates and payments due later in the loan term, and can adjust every month, quarter, year, 3 years, or 5 years. The period between rate and payment changes is called the adjustment period.
The initial interest rates for adjustable rate mortgages are normally lower than a fixed rate mortgage, which in turn means your monthly payment is lower. If you only plan to stay in your home for a short period of time, an ARM loan might be advantageous to you because you plan on moving or selling your home before your initial mortgage rate adjusts. If you expect your income to increase in the future, you might feel comfortable with the idea of saving money now by having a lower monthly payment but be comfortable with having to make higher payments in the future when your income rises and your ARM adjusts.
ARMs are generally considered riskier because your interest rate will probably go up after the initial fixed-rate period ends.
Private Mortgage Insurance (PMI) protects lenders against losses that can occur when a borrower defaults on a mortgage. PMI is required on first mortgage purchase transactions when the borrower has less than a 20% down payment. Likewise, it is required on first mortgage refinance transactions when the borrower has less than 20% equity in the property being refinanced. The cost of the mortgage insurance is typically added to the monthly mortgage payment.